Art: The Last Unregulated Market
Bobby Axelrod hosting an afternoon reception at this spare-apartment-turned-museum with a Van Gogh in the background. Courtesy of Showtime.
The question that is asked daily by experts and non-experts alike is why is one work of art worth a million dollars and another ten million and another 150 million? What drives this market, and what regulations are in place for it? Who has the say in the system, and is there a means of regulating it?
When we go to a gallery and wish to buy something, we do so in good faith. We don't know exactly how the artist and the gallery arrive at the sum, but we need to feel some integrity to the state of affairs. The same goes for any purchase, but in the case of art, the benchmarks can be elusive or just out of reach. But then again, if you're only paying a few hundred or a few thousand dollars, you're not in the game. The art world thrives and survives on high prices. High prices garner attention and importance. Without high prices, there is next to no interest because the stakes are low. High stakes are sexy.
Note also that in big galleries with name artists, prices are not listed. Gallerists say this is in the interests of good taste, but also security, to discourage theft. But it is to allow the price to go to the highest bidder. It also adds mystique, and the artworld would be nothing without it.
Toward the beginning of the television series, “Riviera”, one of the main protagonists, a son of the patriarch in the show, is giving a lecture to an élite well-clad audience. His father (played Anthony LaPaglia) is a billionaire, and his new wife (Julia Stiles) is an art curator from the US whom he met in one of his forays into art collecting. The son, Christos Clios (we think back maybe to the family Dynasty of Aristotle Onassis), wide-eyed, tells the audience that "the art market is the last de-regulated market in the world".
And indeed it is. Interesting that the series opens in this way, setting the cat of distrust amongst a bunch of complacent pigeons. Nothing is as it seems, and the proverbial goalposts are shifting all the time. It just seems that the name of the game is that you do the shifting, or at least now the person who does.
Who are these experts? According to a tightly woven web of vested interests, their credibility is based on consensus, more than anything else, but as I will also soon relate.
Many insiders and outsiders return to the shadiness of the art market, and when you pursue it too closely, you wind up in a rabbit-hole. "Discretion", "privacy", "non-disclosure," and the like become by-words for being able to regulate and control prices and perceptions.
One of the reasons for this is that a relative minority of people feel comfortable entering it. There are thousands if not tens of thousands of courses worldwide about business, trading, commerce, and the amassing of capital. But while some of these who become successful may enter into the art market scene, precious few will come in without access to an expert, someone who knows about art history, the art scene, the art world, and the art market.
So, this makes for a certain mystique. Add to this the fact that art is about abstractions on several levels. If we take a tried and traditional example of a painting: the representation, even if it is photorealistic, is an abstraction from reality. It is a representation. It is not real. Furthermore, the canvas, the wood stretcher, and the paint in themselves have minimal aggregate value. You cannot compare how a famous painting is valued with commodities such as grain, wool, or gold.
Fakes
Another film that begins with the theme of the shady art market, and worth revisiting, is the sequel to The Talented Mr. Ripley, which is equally as good as Ripley’s Game (2003) Ripley now in middle-age, played by John Malkovich. He and his revoltingly unscrupulous sidekick (played by Ray Winstone) are selling a folio of forged drawings to another collector who himself is in full knowledge that they are forgeries and who expects to pass them off as real for a tidy profit.
One of the artists mentioned as Ripley splays the drawings out is Guercino, an Italian painter of the Baroque period. Guercino is not Michelangelo or Bernini. The point is that this is an artist who is desirable but on the second rung. This is very typical of the logic of forgery, to imitate slightly lesser artists as they have historically been subject to far less scrutiny, and are inclined to be collected by those who cannot collect the "big guys", and therefore may, in turn, have fewer powers at their disposal to vet out fakes.
What is true is that the art market is flooded with frauds and fakes, but also measures to inflate prices, destabilise markets, distract and debilitate. Attempts at legal action and regulation remain isolated and uneven. It is perhaps because of the actual chaos within that the art world and the art market has played their cards close to its chest. It defends its actions and resists attempts at any significant overhaul, insisting that the officially observed processes are correct and in the reliable hands of experts.
A couple of years ago, I had a conversation with a reputable lawyer who had won a strung-out court case against one of the two major auction houses, Sothebys and Christies, for selling her a fake painting. The painting she bought was not in the millions, but does it need to be? (Many fakes are lower in the prestige-pecking-order so that they stay under the radar of scrutiny.) She’d won, at considerable personal cost, both financial and psychological. But she's won against the cohort of practised lawyers on the auction house's books, with all their tricks and their practiced rhetoric. I asked her a few probing questions that she answered easily. Good. I was inclined to listen.
She asked me what percentage of artwork on the market I thought was fake. I answered 20%, and she replied it was twice that. Now, of course, it is impossible to measure accurately, but the fact is that the number of fakes is inordinately large, far more than expected.
As a result of the research she had to put into the case, she has become something of an expert, but she doesn’t have a watertight knowledge of the field. No-one has, quite simply because the whole business is based on deception, collusion, and vested interests. After all, if you bought a painting for a few million (or more) and found out it was a fake but knew you could get away with reselling it to recoup the money, and you could do so with impunity, would you? Be careful before you get too moral. This is a lot of money for the charity you could give the money to as penance for the whole squalid mess you found yourself in!
Another report by the AFP states that Yann Walther of the Geneva-based FAEI contends that as high as 50% of works of art around the world are either forged or misattributed, and even that percentage may be modest. Walther reports that in his own organisation alone, about 80% of works—that's four in five—end up being found to be misattributions.
There are several good documentaries on fakers past and present. One is on Wolfgang Beltracchi, who painted work in the style of artists. Recalling the Guercino drawing, Beltracchi painted by slightly lesser modernists such as Max Pechstein and Heinrich Campendonck. However, he did turn his brush to make works imitating Max Ernst and Ferdinand Léger.
Even Michelangelo was in on the game, which in 1496 sculpted a sleeping cupid and sold it to a cardinal after burying it to give it the patina of age. When the cardinal found out, he demanded a refund from the seller but was so impressed with Michelangelo's mastery, allowed the artist to retain his share. Not all forgers are so lucky, but, mind you, Betracchi, when found out, was only given a limited gaol term.
There is now a discrete history of forgers, beginning with the “great” Hans van Meegeren, a Dutchman who forged an early Vermeer that a battery of experts had confirmed as real. He ended up confessing to get out of a charge of collaborating with the Nazis during Amsterdam's occupation.
Now there is a thriving market for old canvases. Forgers will expertly clean them and use them as the basis for the work from the era from which the artist forged. Meegeren, in his time, mixed his paint with an early form of plastic, Bakelite, and stressed it, so it cracked and inked the cracks for dirt. Because of the compound he had created, he passed the first test to check if a work is a forgery, passing over the surface a cloth dipped in alcohol. Fully-dried but relatively new oil paint will show on the cloth, old paint will not.
Confidence, Commodities and the Stock Exchange
Basic commodities are valued according to scarcity and use. We need wool for fabrics and clothes, we need gas for fuel, and we need food to eat. Then there are commodities like minerals from zinc to lead to coltan. Coltan, a rare mineral only found in Africa, has only become valuable in the last few decades as it is an essential component of cell phones.
Gold is a slightly different story and bridges the value we give to specific works of art. While it is a rare metal, it is also beautiful. Still, even more than that, we are aware of the many civilizations that have also valued it for its scarcity and beauty and have incorporated it into many other beautiful and sacred objects, from sarcophagi to altarpieces to the gilding on ornate ceilings. Gold has its own mythology attached to it that assists in it being assigned a high monetary value.
Another bridging concept in art and value is when a commodity has some kind of authorship accredited to it: artisan cheeses, a wine-maker, and then on to design products and branding. In fashion, we don't care that Ralph Lauren hasn't oversight over every item of clothing he produces—how could he?—but we nevertheless trust in the brand. Reciprocally we are led to believe that his brand signifies quality. We also know that the signs of quality (seen in the visible brand) confer status on us. So, we are more likely to pay more and happy to do so.
When we come to art, it encompasses mythology, perception, confidence, and a handful of other narratives that are more or less accurate but always fluctuating. These perceptions, all these abstract co-ordinates, are very hard to regulate.
This is also why they are easier to influence than essential commodities. All are built of sign systems that influence consumer demand: a major film that has the main star eat several apples is unlikely to affect world apple consumption, although product placement—driving a particular car or wearing a brand of pair of sunglasses—is known to have a sizeable effect.
Another critical point is that the art market values are similar to the stock exchange: confidence and interest. For instance, an artist with an inflated reputation will begin to decline in value if works start selling off in large numbers.
In large auction houses, there is a thing known as "chandelier bidding” where auctioneers accelerate the bid when all they are doing is gesturing to the light fittings, running up the prince on their own.
There are also still legal convoluted insider by-ways that occur in bidding. One is the guarantee. This is where the auction house guarantees a prospective seller an agreed price by arranging a third party to buy the article if the work does not sell for more. The bidding public has no notion of this, however. The third-party, who wants the work, is never the loser because even if the prince exceeds the prince previously agreed-upon, an arrangement is in a place where he or she receives a percentage of the difference. If the difference is four million, and the agreed portion is 30%, then the guarantor walks out with 1.2 million.
Auction houses defend this practice by stating that they require such guarantees to attract and secure the sales of high-ticket items since it is usually these that attract guarantees.
In art, because it is an unspecific commodity not confined to rational use, it is possible to get creative with the processes of exchange.
Here’s another scenario, and not by any means the least.
Take an artist X who was bought by your grandfather and passed down to you. As a collector of X, you may be savvy enough to know other X collectors. You al begin to see the artist in his true colours, as propped up by the establishment in his time. You start talking. One says to you that he is willing to buy your X at a higher than market price so that the other friend can off-load her X at a higher than market price. He is willing to do this because he and she are about to make a trade of works based on those conditions.
These sorts of things and a lot more elaborate happen all the time, and it is all perfectly legal. It all comes down to the way that art has less of an intrinsic value that basic commodities. "Intrinsic" here, meaning susceptible to reasonable units of measure.
There have been efforts to regulate the market, but control ultimately slips from any well-meaning fingers. What is to stop people from trading artworks or gifting them? Or creating perceived scarcity? Or flooding the market? (Which includes fakes so that they run a higher possibility of being moved quickly.)
A Concluding Anecdote: Building on Vested Interests
Here is a story based on facts, "but the names have been changed," so to speak.
There is an entrepreneur who, after retirement, devotes a large part of his time to supporting art projects by prominent international (and some local) artists in notable outside venues, galleries, and museums.
His choices of artists are strategic. For example, he hears of an up-and-coming artist from Switzerland who has had several high-profile exhibitions in both commercial and non-commercial spaces. This artist is building what is called a provenance. In her case, the places that agree to show her are indicators of the extent to which they value her. Let's draw a parallel between a product, say, an artisan cheese, and the difference in prestige between it being sold at the local corner store and Harris Farm or some highbrow provedore.
Ok, so he hears about this artist, and she's from Switzerland. That's good. It helps because the funding body Pro Helvetica, the Swiss Arts Council, has more cash than most and so can likely offer this artist a decent amount of money if she were to receive a plausible and commendable invitation.
She accepts. The arts council goes into gear. Great. No travel costs or per diem. So far, the only cost is his time and effort, or should I say that of his staff, many of whom are employed on a small salary as arts professionals are, and hungry for the contacts the job will bring.
Then the entrepreneur approaches the director of a major museum. The director knows the entrepreneur who has donated a sizeable amount to his institution. Yes, says the director, let's do the project. We'll push it into the schedule for the year after next (perfect for museum programming).
Fast forward two years. The entrepreneur and his staff have helped the Swiss artist toward a successful show—success meaning good attendance, reviews, publicity, and so on. The Swiss artist is over the moon and very grateful as she is not yet an old artist with an enormous sense of entitlement.
After the dust has settled, the entrepreneur asks the artist to lunch. Still, in the flush of success, the artist is in high spirits. After a nice bottle of wine, the entrepreneur asks the artist if he could buy three or four of her paintings—but directly from the studio. She can take them off the stretchers and roll them up and send them affordably.
Selling like this is cheeky, both know. It avoids the gallery commission of 40-50%. She has a good gallery in Zürich, and the commission is well-earned as they have done a lot in promoting her career and selling her work regularly, which has meant she hasn't had to teach as much at the academy.
The gallery has its costs such as staff, rent, on-costs, travel to art fairs, and much more. What the artist is doing is not illegal. However, it's just a bit naughty, maybe disrespectful, but she knows it happens all time. Business is business, after all.
The price then is much lower. Of course, the artist is grateful and suggests a little over half of what the going price was to be sold (legitimately) through the gallery.
Both parties part happy. The artist goes back to Switzerland but quickly, based on the latest project with the entrepreneur, lands herself several very creditable gigs in Berlin and another in Barcelona. A curator wants to do a monograph on her.
These projects, another commercial show, and some group show come to fruition, and the artist's reputation is much greater than it had been four or so years ago, upon the time of the invitation.
The works have long reached the entrepreneur who has had them in his safe-keeping for the requisite minimum year. He’s been watching the rise of the artist’s career intently, and with the help of digital subscriptions and social media, effortlessly.
He decides to approach the museum director one day about donating the paintings he acquired via special delivery a little more than eighteen months back. The director is reminded that these could complement the memory of the project from a few years ago. Knowing that such connections and relationships often drive museum collections, he agrees.
But he’d agree anyway, given the amount of free traffic that the entrepreneur gives his museum, and how much he has bolstered the collection. The only costs involved in donations are those of the valuers.
He calls up Stephanie and Hussein, both long-time valuers for the museum. These valuers know that valuers for the state museum are excellent for their businesses, and they want to keep the museum happy. They know that the museum knows this, and they also know that the museum wants to keep the entrepreneur happy.
They assess the paintings. Their valuations include considering the artist's activities, including what has occurred since the museum's project. The prices are also at the going rates from the gallery in Zürich, and wow, the artist now has a gallery in Barcelona!
All of these are critical variables. Take first the sum of close to double the original net price the entrepreneur paid under the table, then add all the other "esteem factors" as they are called of what has gone on since. In the end, the valuation comes three times the original net prince of what the entrepreneur had paid under the table.
The tax certificate is presented to the government at the end of the financial year, choosing to be offset from the company's income or the entrepreneur's income. He decides to cancel it from the company's revenue. Oh, dear! It's operating at a loss! And it’s all legal.
All of this should not deter you from investing in art, but it is best to know some of the stories first and, like pieces of a jigsaw where many are lost, at least you can make some kind image on which to build your own determinations.
Recommended Additional Reading:
2020 Art Market Report: https://theartmarket.foleon.com/2020/artbasel/index/
