Friday, January 23, 2009

Is the Art Market Dead?

Everyone has been talking about the demise of the art market since the stock market collapse in October. My opinion of the whole situation probably doesn’t vary too much from other things that you’ve read recently, but I’ll lay it out all the same.


The art market is a market like any other Adam Smith, Invisible Hand-wielding capital structure. It is lodged firmly in the structure of basic free-market economics, governed by the principles of supply and demand. That is, an optimal price is reached when the forces of supply (how many people want a product) and the forces of demand (how many are available for people) collide. People may think that the art market differs from say the market for canned soup because it is not an easily commodifiable good – not every piece of art is exactly the same and so the process of valuation differs per product. Or by the value we derive from art is not just an easier understood Utilitarian value (the more we have of something the better) but is consistent with value as it pertains to ineffable values of cultural capital. While this does make the art market far more complex than other markets it doesn’t make it any different.

 

In any market there have been booms and busts. Booms come about when consumer confidence is especially high and people are willing to wage more money on the fact that the product is going to increase in value. Often times these are built up artificially high by speculators – or those who are not really involved on a personal level in a product but are merely trying to “flip” the good and reap the benefits of the spread. It is a bit like arbitrage in the general market. Once consumer confidence falls apart (it could be anything from a 9/11-like attack, withdrawal of “free-money” in the form of credit, etc.) all these speculators pull out of the market and thus the prices tumble very rapidly. This leads to a bust. We’ve seen it most recently in the credit market and the house market (indirectly) in the US, but also during the dot com era, and in any number of other consumer goods. 

 

I will go into more detail on this later, but essentially, I believe that the art market was highly inflated. And the art market is particularly susceptible to inflation because the means of valuation rests solely on the shoulders of public opinion and consumer confidence – it is little to no intrinsic value. People had been so confident in their artworks as to push the prices waaay high up until they could no longer sustain themselves. I see a major reorganization of the whole market in the coming future and a return to 1990s level. 

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