What is a Work of Art Worth?

06 Mar 2018

"When bankers get together for dinner, they discuss art. When artists get together for dinner, they discuss money.” Oscar Wilde (1854-1900).

Dinner party conversations haven't changed so very much since Wilde’s epigram; art and money are always favourite topics. Today they’re often spoken about in the same breath by artists and bankers alike, in part because works of art continually sell for headline-grabbing sums. When Salvator Mundi realised $450 million in late 2017, suddenly a lot of people wanted to know how a painting could be worth such a huge amount of money.

There is also a reaction against this, one that’s just as much fun to talk about over dinner: is it right to consider works of art – the pinnacle of human culture and creativity – in terms of headline figures? What happens to the purity of art when we let the market in?

It is a valid concern, but history has shown that art and its value have never been exclusive concepts. Economics does not replace aesthetics, art history, or connoisseurship. Value is an additional facet to understanding art, one that’s vital if we want to see the full picture of how works are created, collected, bought, borrowed and sold.

Economics can be used in many ways in the study of art and art history. For example, we can use it to understand how the great masterpieces of the European Renaissance were commissioned under a system of patronage. It can be used to examine a single artist, let’s say Andy Warhol, and see how he ‘built’ his market through the careful and strategic development of his practice. Or we could ask why it is that an oil painting by Pablo Picasso can sell for many tens of millions of dollars, but his drawings average at less than $200,000? In each instance, understanding the financial motivations of artists and collectors gives us an additional and important lens through which to look at works of art.

So why is a painting so much more valuable than a drawing by the same artist? Why, indeed, do the works of some artists sell in the millions, others in the hundreds of thousands, and the world is full of perfectly charming paintings that would struggle to reach $100 in a yard sale? One clue comes from The Wealth of Nations, published in 1776 by Adam Smith, considered by many to be the father of modern economics – the man who introduced the concept of mass production, or ‘the division of labour’, hundreds of years before Henry Ford set the Model T rolling off his assembly line in any colour so long as it was black. Smith wrote “With the greater part of rich people, the chief enjoyment of riches consists in the parade of riches, which in their eyes is never so complete as when they appear to possess those decisive marks of opulence which nobody can possess but themselves…In their eyes the merit of an object which is in any degree either useful or beautiful, is greatly enhanced by its scarcity, or by the great labor which it requires to collect…Such objects they are willing to purchase at a higher price than things much more beautiful and useful, but more common.” Scarcity is a huge contributor to value: if you know you have one opportunity to acquire the last painting by Leonardo da Vinci likely to come onto the market, then you will bid commensurately.

But scarcity isn’t everything. There probably aren’t that many available works by your neighbourhood yard-sale artist either (although there are millions of yard-sale artists). First of all, to affect the art market, the artist needs to be considered worth buying – in modern terms – they must have a brand. And what makes the brand? Well, historical value, in one instance. Their works having already sold for large sums of money. Then there is art historical significance, the artist’s importance to the ‘canon’ of art; there are the collections that the artist is held by (a work by an artist in MOMA or Tate could almost be considered to have been ‘endorsed’). For a particular work: who has it been owned by? A respected collector who bought it straight from the artist? Or has it been sold five times in the past ten years?

All these considerations impact prices even before you look at the work itself: subject, size, colour, condition - all will affect the value the market ascribes to a work of art. Did you know that, for a given artist, paintings of women are likely to sell better than other subjects?

The art market is larger and more diverse than ever before. If you want to transact in it, you need to understand why it performs the way it does. You’ll find out what you need to know about what a work of art is worth in The Economics of the Art Market taught in March in Hong Kong by Noah Kupferman, Program Director of the Art, Law and Business Master’s Degree, Christie’s Education New York. 

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