Why Is Art So Expensive?

By Andrei Vazhnov 

http://www.thedailybeast.com/newsweek/2011/12/04/why-is-art-so-damned-expensive.html

1. Low Liquidity. A few players make the market in any given artist. Hence departures from rationality are common.

"The crowds lining up to see Lauder’s Klimt in 2006 must have figured that looking at the most expensive work in the world would also expose them to one of the greatest. They were wrong. Almost no one would say that Klimt is crucial to the history of art. As Glimcher, the dealer, put it, “all you need is two people to make a market”—and he doubts that, in another 50 years, we’ll find two more Klimt fans willing to break records for his art."

2. Hunting and Gathering. Modern Art tends to be more expensive because it is more fun to shop for.

"This idea of hunting and gathering—it’s not a new one.” And as de Pury, the auctioneer, explains, there’s no fun in hunting where there’s almost no game to be caught. That’s why the market for old masters has cooled down, he says, whereas certain later artists, such as Warhol and Picasso, produced so much art, in such a variety of styles and modes, that there’s still a thrill left in shopping for them."

3. Lack of Direct Utility. Since art does not have direct use, it makes it a perfect "positional good" (http://en.wikipedia.org/wiki/Positional_good).

"Buying a yacht is a tiny bit like buying a rowboat, and so retains a taint of practicality, but buying a great Picasso is like no other spending. Olav Velthuis, a Dutch sociologist who wrote Talking Prices, the best study of what art spending means, compares the top of the art market to the potlatches performed by the American Indians of the Pacific Northwest, where the goal was to ostentatiously give away, even destroy, as much of your wealth as possible—to show that you could. In the art-market equivalent, he says, prices keep mounting as collectors compete for this “super-status effect.”

4. Growing wealth of the BRICs. The "artigarchs" purchase art only on price in order to "westernize themselves."

"As money stacks up in the BRIC countries (Brazil, Russia, India, and China), their oligarchs are buying into the wealthy Western mainstream by forking out for its art, the way their poorer compatriots are buying into skinny jeans and Lady Gaga. Broad, a billionaire himself, says that for these new buyers “it seems money is no object.” It has come to the point where such “artigarchs” are pricing the normally rich out of the game."

5. You can party with the modern artists; hence it is more fun to buy modern art.

"If giant fairs like Miami Basel are lousy places to contemplate art—and they are—they continue to flourish because they are fabulous places for shopping. That, says Velthuis, may also account for why contemporary art has come to be the big-ticket item over the last five years or so: it’s simply way more fun to shop for works by artists you can still party with."

6. Price affirms cultural worth.

"I asked the great New York collector Agnes Gund how she would feel about her artworks if their value suddenly halved. “I wouldn’t feel they would have changed,” she said, explaining that most of her pictures are promised to museums. Then I asked how she’d feel if their value doubled instead, and her story changed. “Obviously, it’s wonderful to see the price rise,” she said, since that’s confirmation of the object’s cultural worth."

7. Chance to be tastemaker.

"Also, when you make headlines by spending vast sums on newcomers, you can become a tastemaker yourself, instead of having to wait for the art historians to sort matters out. Just by spending those sums you can launch a bandwagon your friends will jump on, soon confirming both your eye and your investment."