The Economics of Art
It’s been a crazy week folks. Banksy’s “Love in the Bin” was auctioned yesterday for a record £16 million after an intense 10-minute bidding process. But, wait, that is not the crazy part. The crazy part is that half the painting is shredded, and that half is the half with a majority of Banksy’s sketch work. So, does a painting’s PR value make it more valuable or is it the artist’s creative value? I have been grappling with this question for quite some time now and this sale has increased my fervour to resolve this.
Art and wealth have flirted, romanced, and loved each other for centuries. Art has been the investment, status symbol and national treasure that the wealthy wanted, and the wealthy have been the benefactors that art needed. They have been together for centuries and are still madly deeply in love. Talk about an enduring relationship! Anyways, it is no secret that this marriage is the reason the wealthy have enjoyed the privilege of being the revered custodians of art. I know, nepotism sucks.
The Art Market works on a mechanism remarkably like that of the Stock Market albeit with some changes. Whilst demand plays an obvious role in the pricing of artwork, much like the other asset classes, supply is the other star of this show. When there is a decreased supply of paintings of the same artist, era, or school of art as that of the artwork then there is an increase in the price of the art on account of the increased rarity of the painting. This rarity bodes well for collectors who see an appreciation in the value of their collection which directly correlates to an increase in their paper wealth.
Whilst the mechanism is simple, the intangibles of this purchase make this whole field a particularly interesting landmine to explore. Come to think of it, we have always been taught since primary school to appreciate art’s surreal beauty, but the fact is that things are seldom so black and white. Most collectors are not able to enjoy this privilege of their wealth because most of these paintings require specific conditions, which are hard to mimic in primary residences, to ensure their preservation. Moreover, art is a highly convenient tool to escape nail-biting taxes for the wealthy and for the criminal few a perfectly legal way to launder money. Not that I am advising in favour of this legally illegal activity! While the tax write-offs are an interesting conversation for another day I would highly recommend you to do a simple google search to read more on this subject.
So answering the first question, active PR activity is equivalent to an artist’s creative genius in monetary terms since both can lead to an appreciation or depreciation of an artwork’s value. Why people buy expensive art is a question I would rather not answer since there is no singular response to this question. But, the one thing I would say is that art has an allure like no other commodity that the wealthy splash their cash on. Being such a rarified activity, collecting art has become a way to announce your arrival at the gates of high-society in the most gentrified fashion, and it has been so for the past some centuries. While newer platforms like Masterworks are bringing art to the masses with fractional ownership models the collection these platforms would be able to offer is quite limited. No matter what happens there is little these platforms can do to untangle the holy trinity of the art world. The truth is art had, has, and will continue to captivate the attention of the wealthy.