The present assignment has the purpose of showing elements, which can contribute, in a general view, to the development of the art market and also falling on responsibilities with all those participants of the art market. It will be the result of critical reflection that it will turn into a training moment. The main aims of this review are to acquire an understanding of the conditions of the art market and to develop a critical knowledge of the commercial art world and the relevant international market.
The idea that the international art market is a regulator in the post academy art world has implications on the formation of prices and values in the art market, due to the macroeconomic reality, political and cultural changes of this period. Throughout the nineteenth century, the Acadmie des Beaux-Arts continued to produce many important artists. It lost its power only at the turn of the century when it failed to acknowledge radical styles such as Impressionism and Post-Impressionism.
The downfall of academic art also was hastened by economic changes in the art market, which included the growth of independent exhibitions and the development of private sales galleries. Over these years, the unsettled system of financial market which
Hence, market segmentation, division of labour and specialisation caused a division between high and low culture, and separate good art from junk art. In this way, the art market should select the talented artists in a free and wealthy society that allows a very large number of artists to have more opportunities becoming financially independent and to acquire artistic freedom. Although, the role played by the dealer in the market, as cultural entrepreneur, is important for maintain the value of the product.
In this instance, how best the international art market can be organized, what is the best way to balance the supply of art and what is the market’s purpose through the dissociation of good art from junk art. The market must restrict the supply of art and antiques selecting the talented artists, good art, thereafter raising the relative value of a work of art. Therefore and based on this statement, this essay will consider arguments for the market as the regulator of the supply of art and point out some of the problems with this market’s function What is considered art changes over time… ”
Bruno Frey The term “art market” is refering to the “organisation through which works of art, modern or antique, are distributed by auction-houses, dealers or private buyers”1. The international art market is based upon individual players whose motives are ultimately the maximisation of art. In this way, the market developed into the international scope due to the proliferation of the figures of dealers and auction houses, whose international work in Holland, England, France and Italy became recognised in nineteenth century.
Hence, Academic art, serving as a bridge period between the Baroque and Early Modern era, was essential the comprehension of new ideas about art and its periodisation, the extension of subject matter and development of technique, and the new interaction of public and patrons with artists. Many of the characteristics of nineteenth century Academic Art – small scale, storytelling, realism and high finish – reflected changes in the art market.
The political and cultural authority of church, government and aristocracy, the industrial revolution and emergence of a large commercial middle class, along with an unprecedented expansion of living space, stimulated an increase in the demand for decorations and art. There were fewer large-scale commissions and artists sought to appeal to a new group of patrons: wealthy, middle-class art lovers. These new collectors acquired art for personal enjoyment, to decorate their homes, and to demonstrate their cultured sophistication.
The nineteenth century is the century that sought to sound out all artistic possibilities in the light of technical and scientific advancement, the ever-increasing complexity of which art could at best only reflect. Once the revolution in art appreciation had been completed, Impressionists caused the supply function to become very elastic with accessible prices. For example, framed canvases of French Impressionists were available in abundance in street markets, which the subjects were landscape, vases of flowers and ordinary people eating and drinking
However, in the post academy art world, the international art market had an important role in driving art prices up due to a strong international demand. As a result of the abundance of art objects, the market limited the supply of art and antiques. Several changes in the organisation of art markets had to take place in order to attain market prices above the opportunity cost of intelligent. Leslie Singer assumes in his review, Phenomenology and Economics of Art Markets: An Art Historical Perspective, that “the supply both art and artists in the market had to be constrained”2.
In these circumstances, the dealer intervened in the market to maintain the value of the product and give to the buyer the necessary information on quality. Thus, the dealer’s guarantees of supply constraints furnished insurance against unexpected capital losses and, in addition, dealers were often willing to buy back products or accept trade-ins. According to the author, “in the art markets buyers and sellers are equally interested in restraining trade”3. This statement tells us that limiting the supply of art, the art market will assume profit maximising the role played by dealers.
Thus, art will be priced higher. Along these years, the art market changed in a radical way. For example, works of art have never before experienced such popularity among the public, and prices have continuously exploded. The focus is on international art market investigating the means by which we determine what to consider works of art and how to evaluate them. The value of art is a result, primarily, of externalities on the system (financial and art markets) and the individual (consumer demand – taste). Nowadays, investing in art is another concern inside of international art market.
The difficulty of investing in the art market derives from the art market’s inefficiency, from the know-how and expertise that the art market requires, and from the uncertainty surrounding tax issues. William Baumol, the father of modern economic, analysed financial returns of art market, mainly the painting sector. This author has a pessimistic view of art markets, cultural pessimism, which is in contradiction with cultural optimism of the other author’s opinions. Thus, for Baumol “the art markets have a much weaker equilibration process (equilibrium price) than other securities”4.
This is because of the elasticity of supply is equal to zero for works of deceased artists; the owner of a work of art has a monopoly on that specific object, while a given stock is held by many individuals who are potentially independent traders on a near perfectly competitive stock markets and the equilibrium price is unknown, so an objective evaluation (such as a present value of future cash flows) is often impossible. This author also criticised the relationship between arts and economics saying that, “the high correlation between the art and the stock and bond markets clearly makes art a poor vehicle for the purpose of diversification”5.
Therefore, successful investment in art requires not only extensive know-how about artistic quality and authenticity of the object to be acquired but also about peculiarities of the art market. Additionally, it requires the investor to establish a scenario of future economic and social developments, also including international factors such as exchange rate movements, special cultural factors and market preferences. In conformity with an alternative interpretation of these results, art returns come from two different sources, the financial return (change in monetary value) on the one hand and the psychic return (or consumption benefit).
The approach then purposes that if there is at least some consumption benefit, the financial rate of return of art objects should in equilibrium be lower than that in other markets with similar risks. Baumol’s pessimistic assertion that since the single determinant behind the value of a work of art is personal taste, and since tastes change unpredictably over time, there is no possibility for significant long-term real growth in the market. Hence, Baumol’s methodology is far from perfect.
Clearly, “it systematically selects only a small portion of the market”6. For instance, “paintings of the highest quality may be purchased by museums and thus never reenter the market at all”7. Moreover, recognise that “Baumol’s low rate of return in art investments cannot be entirely representative of the market since some cases of significant profits are observed”8. The conclusion, then, is that diverse characteristics of art must be considered within shorter time periods to achieve a full understanding of rates of return.
For example, Impressionists yielded a 28. 4% return from 1950 to 1961, while English Painters lost 6. 9% from 1914 to 1949. An ideal market model is normally one that involves large numbers of players, buyers and sellers, as well as price transparency and easily accessible information. The art market, however, has not always able to pride itself on its economic model. The art market may be on its way to becoming an economic ideal after all. At the same time that the market limits the supply of art, it also divides good art from junk art.
Whereas the works traded in the junk art market do not have pratically risk, because there is no expectation of gain, the works in the primary market have a considerable element of risk, because the buyers undertake a calculated risk. However, to explain both the levels of art and its changes, we should, initially, to analyse the interaction of supply and demand through transactions costs (real cost) and information costs (time-consuming) of works of art. Hence, for example, in the primary market the information is very imperfect, because obtaining accurate information is costly in terms of time, effort and even money.
In this case, the works of new artists (“unknowns”) and the works of more established painters are trade in this market. The primary market is one in which original works are sold for the first time, and the resulting price reflects the operation of the forces of supply and demand. This market includes artist’s studios, art fairs and festivals, galleries and many others. One of the market’s great advantages is that it permits and fosters variety. This raises the chances that innovative ideas spring forth, keeping art lively. According to Frey, “there is no such thing as good or bad art”9.
Although, it should not be forgotten that the main objective of the art market is return. Thus, it is important to select and separate good art from bad art for to face up to a demanding buyer. In this way, market segmentation, division of labour and specialisation help to delimit the boundary between high and low culture, and good art from junk art. Virginia Owen in her article, The Effects of Mass Markets on Artistic Quality, refers the art quality of mass culture and analyses some divergence between high art and the illusion of decline brought about by the abundance of art objects which surround us.
This author also criticises “no era has produced only masterpieces and the passing of the years allows us to separate the good from the bad”10. Therefore, can we construct an analysis which can explain this connection? The problem is made more complex by the apparent phenomenon of prices which rise continually despite this decline in quality. Somehow then, it must be extended the simple supply and demand analysis described above to characterise the effect of mass market in such a way as to reduce quality and increase price.
According to this view, then, some artists may be able to produce large number of works of art in a short space, as Di?? rer’s woodcuts and Handel’s Messiah, for example, or even Herb Brown, abstract expressionist, who made 28 paintings in twelve hours. However, in accordance with Singer, “this strategy of separating the markets, which worked so well in the past, was beginning to break down in the late 1970’s”11. In the late 1970’s, high profits earned by some key dealers and collectors, as well as profits earned by auction houses, attracted a large number of participants.
For this reason, the competitive markets, especially art markets, should restrict the supply of art and antiques and separate good art from junk art. For example, since May 1996 the painting segment of the art market has provided an average annual return of 6. 82%. In the current climate of economic uncertainty, the art market stands out as a safe haven12. A work of art is not an exact substitute for a financial instrument, it retains all the investment advantages, but also gives its owner aesthetic pleasure.
Risk run on the art market are far lower in the medium term than those taken by the stock market investor. But the art market attracts not only risk averse investors but also shrewd collectors. Its combination of natural growth in demand and a highly inelastic supply inevitably prices up over the medium term. Tyler Cowen, professor at George Mason University, has suggested that recent price rises have a purely speculative tone. Nothing could be further from the truth. The selectivity of buyers underpins the health of the market.
Collectors have never been more discriminating than they are today. Over 36% of works offered for auction are bought in. In 1998, the no sales ratio was just 25. 6%. Prices may be rising but experts are no less prudent and overambitious sellers, who set their reserve prices too high, are often left with nothing to show for it. The lesson of 1990, when the art market had real gains, looks to be well learned. Division of labour and specialisation have produced an abundant variety of art products. Market segmentation caused a division between high and low culture.
Cowen in his book, In Praise of Commercial Culture, does not deny that “ninety per cent of what the market produces is junk, but this is, in fact, a sign of our affluence”13. The effect of mass culture has not reduced the demand for the avant-garde. Art markets show a great variety of new styles. New art usually contravenes the taste of the majority of the public or is too difficult to comprehend for the average public. Cowen also considers the situation of positive impact that commercialisation, trade and technology have on the development of the arts.
Cowen does not deny that the sale of art has become big business, but neither does he consider it a danger for the arts. According to Grampp, the opinion of experts is the main indicator for the price. He says that, “artists who are praised the highest by experts also command the highest prices in the arts market”14. Therefore, everyone brings a diferent judgement to the work of art according to his or her training and areas of expertise. “The more extensive your experience, the better you can distinguish the truly special item”, said Cornelia Parker, London-based artist, to Tate Magazine.