Is Art an Asset?

March 17, 2009

Street Art blog Wooster Collective posted some brief thoughts on galleries cutting prices on the work of the artists they represent.

There are a number of interesting responses on their facebook profile but what this brought to mind was those damn tulips that always get dragged out of the 17th century every time a commodity market gets hyper inflated.   I know that everyone wants to talk about the Tulip Craze every time you see a market start to collapse but I think there isn’t any other readily available model for a commodity which is traded but lacks intrinsic value.   You can’t eat art, build a shelter with it, or melt it down (unless you’re Damian Hirsh) to extra valuable materials from it.   Its a very strange commodity which like “Brand Awareness” has a value but there’s “nothing” behind it except for a willingness of a culture to agree that it does have value.   Brands cause things to happen but they don’t do anything on their own.  Yet they enjoy strong legal protection in the form of trademarks because they do have that economic power.

Some would argue that stocks are the same as art as they don’t have any intrinsic value in themselves yet they carry a value and they’re used for investment purposes.  I strongly disagree as stocks are linked to something else while art is a thing in itself.  Investing in stocks is investing in the profitability of a company based on its past performance and perception of that company’s ability to return a profit in the future.   The price of  art is based somewhat on past performance, the performance of other like pieces or artists, and a future perception of its value.

To separate art from stocks let me propose a thought experiment.  Would you ever buy a stock simply because you liked the way it looked?

This is where we return again to those damn tulips.  The tulip craze was a speculative bubble which started when it was discovered that people would pay absurd amounts of money for certain flowers.   The collectors who were pumping real money into the tulip market were discerning as to which flowers they wanted and were in the position to pay  large amounts of money for rare bulbs.  The speculation bubble came from underneath when larger segments of the public got into the tulip market for the purpose of selling any tulip rather than catering to the needs of the collectors.  Soon the market existed for its own sake instead of meeting a need for actual bulbs for the gardens of collectors.   There was real money to be made in the buying and selling of tulips or even shares of tulips.  The bubble situation we all read about in grade school inflated and then popped one  day leaving countless numbers of speculators in financial ruin.

I really don’t know enough about the art market or markets in general to speculate if a bubble occurred within the art market or not.   Collectors will continue to collect art just as tulip collectors continued to pay high prices for rare tulips after the tulip craze collapsed.  There was a continual actual demand for the tulips that had nothing to do with the desire to make money buying and selling tulips and everything to do with gardening which was very much in vogue at the time among the wealthy.

As much as art has a value as a commodity its real end and the real force that drives the art market is its value to collectors.   For them art has a real value in itself and they’re willing to purchase what they can afford and will either keep it in their personal collection or donate it so that their purchase can be properly preserved and shared in a museum or library.  They buy art because they want to.  An excellent article at artmarketblog.com describes the various types of people who purchase art.  These range from collectors who love art, decorators who are looking for art purely on its visual qualities, investors who do treat art like a long term commodity, and then speculators like our good friends in the flower trade who were purchasing shares of a tulip bulb because they thought they could sell it the next day for more than they paid for it.

To tie this discussion back into the original question, should galleries reduce the price of the work they pimp to the public, my answer is yes.  Building a market driven by speculators rather than the bedrock of collectors is not healthy in the long term.  Collectors may not be coming back to purchase art as often as they have in the past as their ability to purchase may be impacted by the current economic crunch.   The important thing is that they want to buy art.  A more important and useful question is how much should prices be cut back and where is the level at which the galleries and artists can’t make a living any longer.  One of the concerns of galleries in cutting prices is that investors who have purchased artwork for the future return will be displeased as their own collection may be devalued.   This is a reasonable concern for a merchant who may rely heavily on a few customers with the ability to buy out shows.   Still, its unreasonable for an investor to expect a gallery to take the role of Atlas and hold up the value of their stable of artists in the face of a global economic downturn just to maintain someone’s portfolio value.   Artmarketblog differentiated between investors who have a diverse portfolio and do expect changes in valuation of their collection and speculators who invested only because they expected their portfolio to go up in value.

In the end its worth pointing out that the monochromatic tulips that we’re familiar with today are not what the dutch were crazy about.   They were interested in the fantastic “broken” tulips which were actually diseased plants.  Broken tulips were infected with a virus that as a side affect caused random variation of its flowers.   Gardeners did notice that they were sickly plants but for Europe at the time they were what a tulip was expected to be.

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