Capital, inequality, and investments in art

so have you really read this through?What are the effects of an increased concentration of wealth on the art market? Writing in the New York Times, Scott Reyburn looks for a link between the theories in most newsworthy economics book of the year, Thomas Piketty’s Capital in the Twenty-First Century, and what we are seeing at the top end of the art market:

Although art is one of the few subjects not mentioned in the index of Mr. Piketty’s 685-page opus, it is worth considering how the unprecedented amounts of money the wealthy have recently been spending on trophy artworks might be a natural extension of his argument.

Piketty’s argument doesn’t really play much of a role in this story, (for a detailed summary and critique see Paul Krugman in the New York Review of Books), except for the fact that wealth is expected to become increasingly concentrated in the hands of the rich. So what would that mean for art?

Courtesy of the above-growth returns identified by Mr. Piketty, the rich are further increasing their wealth by buying art. Many millions have been made by a new breed of investor-collectors who buy Bacons, Warhols and Richters high, and sell even higher. Art by desirable investment-grade names makes the rich richer. And more and more wealthy individuals are now prepared to make bids of more than $100 million at auctions, while outside, beyond the shiny bubble of the art world, living standards in the rest of society stagnate or decline.

I don’t follow the argument. How do the rich get even wealthier by buying art? There isn’t evidence, nor do I expect any to arise, that art has become a particularly good investment overall. Yes, some collectors do well by having made smart purchases of works that increased in value, but on the whole it has not been the case that art is a superior investment to other forms of capital, and you cannot make a judgment about art as an investment with anecdotes about the few collectors who have made it rich. In fact, I don’t see any evidence in this story to back up the claim that art is making the rich richer. If it were true that increased concentration of wealth was going to lead to higher equilibrium prices of fine art, that expectation would already be capitalized in current prices, thus leading to the result that art is not an especially lucrative investment.

Last year, worldwide auction sales of postwar and contemporary art climbed to a historic peak of 4.9 billion euros, or $6.8 billion, a massive increase over the €1.42 billion in auction sales in 2009, according to the 2014 Art Market Report published by the European Fine Art Foundation in March.

Perhaps. But the aggregate value of sales at auction does not speak to whether art is, and will be, a superior investment.

“People are spending millions on works by artists who have questionable long-term value,” Mr. Braka [a London dealer] said.

That might well be true.

Attempts to question how the eight- and nine-figure prices now being paid by billionaires for rectangles of painted canvas might relate to a wider economic and social context tend to be dismissed by many working in the art world as the “politics of envy.”

As Mr. Piketty points out in his conclusion to “Capital in the Twenty-First Century,” those who have a lot of money “never fail to defend their interests.” Those interests are also staunchly defended by those hoping to make money.

I can’t follow what this has to do with the art market.

“Back in the 1990s we had lawyers, doctors, dentists buying paintings,” said Offer Waterman, a London dealer who specializes in modern and contemporary British art. “The professionals have now been priced out of the market and it’s shifted more toward investment bankers.”

This might be the point at which inequality becomes a problem not just for art buyers, but for art itself.

Dentists buying paintings good for art, investment bankers buying paintings bad for art? I’m all for trying to link the trends in the macroeconomy to the art world, but this article’s reach exceeds its grasp.

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