The price of art


I understand that in economics, things have a value and that this value is ascribed to those things by humans, in regard to human priorities. And then they trade with these things. And the scarcity of a commodity is probably best presented by artworks, as there is *only one* Mona Lisa, and only one Guernica etc.

What I find odd is this: How come that artworks are sold at such mind-bogglingly high prices?

After all, a painting, which technically is nothing else but a few square feet of canvas and some paint -- and it is worth millions?!

I can understand the present situation -- now it is just somehow tradition that art gets sold for high prices.

But how did it happen, historically speaking, that artworks began to be sold at such enormously high prices? What was the economical justification for that?

I mean, could a king or a rich man simply say, "I like this picture immensely and I find it dashing, so if you want to have it, you'll have to pay me a lot of money."
That's kinda whimsical to be a reasonable economic reason for a high price, don't you think?

I've just started reading through this; it's a PDF download:

• http://www.econ.ox.ac.uk/members/kathryn.graddy/research/Price-of-art-JELpaper%2012-17-02rev.pdf

From the Abstract:This paper contains a review of the burgeoning research that has been designed to shed light on how the art auction system actually works and what it indicates about price formation. First, we find that in recent years returns on art assets appear to be positive, though less than the real rate of return on common stocks. In addition, some researchers have found that because of the weak correlation between art asset returns
with other returns, there may be a case for the inclusion of art assets in a diversified portfolio. Second, we find evidence of several anomalies in art market pricing. The evidence clearly suggests that, contrary to the view of the art trade, "masterpieces"underperform the market. In addition, there is considerable evidence that there are fairly long periods in which art prices may diverge across geographic areas and even auction houses. Third, we review the public record of the criminal trial of Sotheby's former Chairman, who was accused of price fixing, to show how the collusion with Christie's, the other great public auction house, was actually engineered. Contrary to the way the proceeds from the settlement of the civil suit in this case were distributed, we show that buyers almost certainly suffered little injury from the collusion, in contrast to sellers. In addition, based on the public record of settlement, it appears that the plaintiffs in the civil suit were amply compensated for their injury. Finally, we review the extensive research on the effects of the auction institution on price formation. There is now considerable theoretical research on strategic behavior in auctions, much of it in response to empirical findings, and we review three key findings. First, the evidence suggests that art experts provide extremely accurate predictions of market prices, but that these predictions do not optimally process the publicly available information. Second, high reserve prices, and the resulting high unsold ("buy-in") rates are best explained as optimal search in the face of stochastic demand. Third, extensive research has documented that the prices of identical objects are more likely to decline than to increase when multiple units are sold, and this has led to considerable theoretical research. (Ashenfelter and Graddy)It's a place to start. I need to do some reading before I can start to tell you what that all means.

Thanks and looking forward! :)

I like art but cannot afford any pieces that I want. I view the art online and have books that contain the images of the art I enjoy. So I have all the images that the artists I like has done and didn't pay hardly anything for it. I can take a photograph of an artwork and make an enlargement of it and frame it if I also choose. So why someone would pay so much money is beyond belief to me. True, I don't have the "original" but then so neither does everyone else but the owner of the artwork. Sometimes forgeries are made of great art and people buy it without knowing that it is a fake. That's how good artists are today, they can duplicate anything for a price. So that is another way to get yourself a good reproduction of great art. People are stupid when they buy art for they think it will rise in price and they will make alot of profits when they resale it, but the art dealer also gets a piece of the action as well as the TAXMAN!

People pay such high prices for art because the pieces are rare. It makes financial sense, too, because the art only gets more expensive with time, like real estate. Somehow no one questions spending thousands on a TV set which only pumps out crap. But when an artist puts their soul on a canvas, they don't appreciate it.

Cosmictraveler, Spidergoat,

I understand the present situation. But what I am wondering about how it came to it in the first place.

People have had, ever since they started making the first jewelery (" ") and wear things as ornaments, an appreciation for things they thought beautiful.
This appreciation evolved and extended in time.

But I was wondering about the historical background of selling art at such high prices. When you think, for a long time, aritists were regarded as yet another kind of craftsmen and were also payed as such. But something had to happen that prices of art became so inflated.

I suppose in some respects, it's more of a status thing than anything. Men seek elitism, and what better way to distinguish from the commoners than to purchase art at astronomical prices? I suppose it probably started started as a game of onemanship between rich fucks, and then it became a business. As more of society's rich recognized the game of art dealing, it became a way to invest. Buy an art piece and you are guaranteed of at the very least, recouping the amount you spent on it. I know a friend whose dad purchases very expensive artwork but has no appreciation for art. His explanation, it makes the long nosed pretensious fools who allow him to manage their portfolio look at him with less strained eyes, and also, he knows he can always count on them to buy it back. The great depression I suppose, also helped with the stregnthening of the art industry-- in America anyway.. The pieces never lost their value.

Many people buy art to show others they have "good taste" when it comes to the arts. They also like to impress others with the art they have instead of buying what they like, if anything. In the begining only the rich or the church could have great artwork for they wanted to be "above" the regulars or give great painters the opportunity to show off their wares. As time went on, as was already staed, art became a way of investing for the future but alas many artists never became rich because the value of their work only went up AFTER they died. Today not all artwork raises in value some actually decline so you must be knowledgeable about who's in and who's out or you can lose a bundle.

Fountainhead, Cosmictraveler,

Thanx for the thoughts. Yes, owning art is definitely often a way of elitism and also showing off with one's taste.

But I was toying with this thought: While jewelery and gold and other precious metals are also sold at high prices, they represent delicate artwork and classiness and wealth of the owner. As such, they are carriers of the ideas of beauty and wealth, or something like that.

While artworks like pictures and statues are carriers of ideas and values in a more explicit manner -- since the idea is "painted on", easily recognizable. Yet art is still abstract regarding the carrier material, in the sense that it is after all just a few square feet of canvas and some paint.
Jewels and precious metals have always had a high price, and they still do, and are widely appreciated. The last bum will appreciate a shiny rock. But not so with art, art is not as "accessible" as jewels.

Does the thought, that at some point in history, it became a practice to trade with ideas, have historical merit?

I could be totally off-base, but: In Europe, with the decline of religious uniformism and the doubt in an absolutistic regime, the ideas that were once known as absolute (regarding religion and the king) became more and more vague. And that thereby a space for new ideas was made, a new idea market was opened - that was soon filled with art. Visual art, pictures and statues being the most "easy" ones for reception.

The rich ones, being the social leaders, are representing the cream of society also in matters of ideas: the rich say what is good, what is beautiful, they set the style. And in that decline of old religious and absolutistic ideas, they adopted art as the representation medium of their own style and class. That's how art became a status thing.

What do you think?

Art is the leading edge of culture. It's not just paint on canvas, it's philosophy without words, it is the supreme achievement of mankind, along with all the other liberal arts. Its what humans do when we have solved all the other problems of food, clothing, shelter, etc... It is a system of creating wealth that does not depend on manufacturing, or ruining the environment, but on the creativity of a human brain. In the future this is what people will do, create entertainment and trade cultural artifacts, and we will leave the dirty work to machines.

Most of the art is relative cheap though. There are lots of struggling artist who won't charge millions for a painting.

The price of art

I understand that in economics, things have a value and that this value is ascribed to those things by humans,

What I find odd is this: How come that artworks are sold at such mind-bogglingly high prices?

After all, a painting, which technically is nothing else but a few square feet of canvas and some paint -- and it is worth millions?!
did you ever hear of the story, "The Emperor's New Clothes"?

to answer your question, let me say that I've known artists, done art, taught art, studied art & art history & I can safely say that there are 3 secrets to modern art;
1) art is anything an (artist) says it is (Picasso & friends changed the rules)
2) presentation is everything (how its framed &/or the BS that explains the piece)
3) look for a sucker that will buy it (like a Mark Rothko, essentially color studies) http://www.artcyclopedia.com/artists/rothko_mark.html

which leads (artists) to these side junctions;
a) be the first to do something (as in Jackson Pollack's abstract-expressionism) http://www.artcyclopedia.com/artists/pollock_jackson.html
b) think & act "avant-garde" (be cool, hip, &/or extreme)
c) try to die rich (why wait till you're dead?)

which leads (non-artists) to these side junctions;
a) there's a sucker born every minute
b) hmmm, I understand it
c) you paid what?

The VA facility where I used to volunteer during college, paid $10,000 for what turned out to be unfinished, bio-degradable art, I'd have sued