Chapter One is Done and Dusted
Sarah Thornton’s Seven Days in the Art World
Portfolio’s Market Mover blog is reading the forthcoming Sarah Thornton book that seeks to explain the art world to the uninitiated. In chapter one, she covers the auctions. Here’s what Felix Salmon has to say about the auctions’ role in establishing prices and collectors’ keen interest in those prices:
This doesn’t mean that buyers at auction are “acting like investors”, but it does mean that price action matters, even if you’re a collector who has no intention of selling. Especially now that hedge-fund managers play such an important role in injecting liquidity into spending money in the art world, it’s important to realize what has always been the case: that all collectors mentally mark their collection to market on a regular basis. In this sense, art is like housing: I might intend to stay in my apartment until I die, but I’m still interested in how much it’s worth. And a collector who has made a large mark-to-market profit on his collection is much more likely to continue to spend large sums of money on art than one who has made a large mark-to-market loss.
Salmon goes on to imagine a less artificial secondary market than the auction houses:
I’d love to see a real secondary market in art, where anybody could consign any painting and anybody could buy it. That would give a much better idea of real values than the highly artificial and choreographed evening sales at auction houses (which, incidentally, are responsible for all of the seemingly impressive rise in the Mei-Moses art indices). But of course since such a real secondary market would not be in dealers’ interests, you can be sure it’s not going to happen.
But, again, there is a certain naivete to Salmon’s comments. There is a very large secondary market among dealers that sets prices as effectively, if not as publicly, as the auctions. There’s now even a secondary auction market at Artnet.com that combines features of both the auction houses and the private secondary market. What Salmon is still having a hard time grasping is that an artist doesn’t trade like a stock. Individual works may be prized or dismissed without affecting the pieces that have attained value. This is because price is established not by underlying value but by competition among buyers–both publicly and privately.
Take late de Koonings as a recent example. de Kooning’s prices have been stratospheric for a long time. But there’s still variability among his late and early works. Here price is determined by competition. Landscapes from the 1970s shot up in value a few years ago but have come down from the $25-million range. Phillips de Pury recently sold a late work from 1984 in London for $7 million, which was an extraordinary price for that era’s work.