Portrait of a paradox

On a recent trip to New York, a friend and I sought refuge from a bitter January snowstorm inside the white walls and clean lines of the Museum of Modern Art, nestled between Fifth and Sixth avenues in Midtown Manhattan. All five main floors were filled by people with the same idea, and the gallery soon became a microcosm of the world’s artistic interests, ranging from casual supporters to more serious aficionados.

It quickly became apparent that MoMA, as with other purveyors of contemporary art, had fallen victim to the pervasive ‘my five-year-old could paint that’ cliché. Standing afront masterpieces by the likes of Jackson Pollock and Andy Warhol, parents boasted about their children’s artistic abilities more than ever. Mini-Monets aside, it did prompt a curious thought: how is it that a stuffed shark can fetch $12 million in an international auction when a technically superior one could be manufactured for a mere fraction of the price?

A foray into the relationship between art and economics revealed that identifying as both an artist and an economist (albeit as an amateur of both disciplines, in my case) can be a risky affair. Mainstream economists despair at romanticised resistance to traditional markets, while art lovers cite the failings of the economics profession in their plea for economists to keep their dirty hands off their creative splendour.

Historically, art and economics have featured hand in hand. The French Impressionist movement was supported in part by the wealth generated by the rise of Napoleon and the French Empire, not to mention the prosperous economic conditions in 15th century Florence that brought the Italian Renaissance to fruition. Indeed, the production of art is not devoid of the economic trade-offs in allocation of time or resources involved in the production of any other good. Yet wading through the vitriol established two main points of contention, namely in price determination and art as a form of investment.

Consider the market for renowned works by noted but deceased artists. In his seminal paper on the subject, William Baumol finds the value of these artworks to float ‘more or less aimlessly’ and asserts a difficulty in reaching an equilibrium value given that the supply of these works is inelastic. As even two artworks by the same artist can be considered imperfect substitutes, their owners effectively hold monopoly ownership over those works, hence deviating from the familiar, perfectly competitive market model. A similar argument is employed to refute neoclassical economists’ claims of an oversupply of artistic labour: a Jasper Johns painting cannot be produced by Takashi Murakami, and vice versa.

Counterarguments to seemingly irrational pricing point to some entirely rational, empirical patterns identified in the sale of major works at auction. It was observed that the artists at the forefront of current artistic discourse command the highest prices; yet the later in an acclaimed artist’s career a piece was created, the steeper the figure. Still others allege it is the not-so-invisible hands of major galleries that draw these prices so far out of reach of the average art connoisseur. Either way, prices of individual artworks are known to comprise a fine balance of price history, artistic value and social value, the latter two being exceptionally difficult to define, let alone quantify.

The murky business of art valuation and the resulting asymmetry of information pose significant problems in treatment of art as an investment. Art was perceived as a viable source of capital appreciation before being quickly dissociated from the ‘stock market blood bath’ of 2008. Despite varying methodologies, a number of studies found the average return on art to be lower than that on equity. As such, in purely financial terms investment in art presents little more than a diversification opportunity for long-term investors. Many people are undeterred by this, however, and deem the emotional benefits and other intangible gains of owning art to be priceless.

The case of Damien Hirst’s ‘The Physical Impossibility of Death in the Mind of Someone Living’ is the poster child for the curious nature of art economics. The fifteen-foot creature was caught in 1991 off the coast of Australia and shipped to England to be prepared by a team of technicians working under Hirst’s instruction. The piece landed in the hands of Steven A. Cohen, whose decision to send the work to the Metropolitan Museum of Art on a three-year loan was met with accusations from some that he was using the museum to inflate the artwork’s fame and value, though the arrangement was likely symbiotic, with the shark feeding the Met’s desire to modernise its image. It stands alongside works such as Marcel Duchamp’s ‘Fountain‘ and Andres Serrano’s ‘Piss Christ‘ as shining examples of peculiar price determination, value and controversy in the art world.

The intersection of art and economics is increasingly being subjected to academic inquiry, though whether either school of thought will eventually prevail over its rival is impossible to predict. However, to those claiming that ‘Physical Impossibility’ (along with contemporary art in general) could have been created by anyone, I offer nothing but the reported words of Hirst himself: “But you didn’t, did you?”