Whenever the art market reaches a certain level, journalists and their editors seem to have a visceral reaction that robs them of their senses. During the last market top, we had sober journalists rooting for a crash. That crash, of course, came but not from the internal dynamics of the art market. Rather, the art market suffered, understandably during the global financial crisis caused by the collapse of credit.
What surprised most observers of the art market, inside and out of the art world bubble, was the speed with which art began to trade again. There are many causes for this. But, perhaps the strangest explanation comes from Felix Salmon who wrote last week in The Guardian an essay on Jeff Koons that suggested the artist had developed a new way of funding his very expensive to fabricate art works:
Koons’s economic breakthrough – and such a breakthrough was desperately needed, if works like his magnificent Play-Doh were ever to be realized – was the kind of financial innovation worthy of Blythe Masters and Peter Hancock, the JP Morgan bankers who invented credit derivatives.
Worthy is a nice fudge word considering the global market for credit derivatives can be measured in the hundreds of trillions of dollars. Think about that. We’re comparing one artist’s penchant for going back to his collectors and offering to return the money they paid for a work because his notorious fabrication costs get out of hand with a financial innovation that froze the world economy.
In any sensible art world, Koons’s financial innovation would never have worked. Let’s say that you’re willing to pay $20,000 for a work which costs $7,000 to fabricate. You pay the $20,000 up front, and are then told hey, we’ve had a massive cost overrun, please pay us another $20,000 or get your money back. You would just say thanks, I’ll have my money back. I was willing to pay $20,000, but I’m not willing to pay $40,000.
In the fevered upper echelons of the contemporary art market, however, values can soar overnight; artworks are bought at least in part for their speculative value; and the amount that someone is willing to pay for a piece is mostly a function of how much someone else is willing to pay for that same piece.
What Koons discovered was that so long as his work was rising in value, few collectors would give up a work they had bought at a lower price – even a work that didn’t exist. And if they did, no harm, no foul – there was always a long line of new collectors happy to step into their shoes. Koons, very cleverly, found a way of exploiting the mark-to-market mentality that is now ubiquitous in the art world: the way in which collectors are hyper-aware of how much their art is worth. So long as the collectors could credibly believe that they had “made money” on their non-existent art, they were generally happy to keep on funding it – in Bell’s case, for some 20 years.
The Koons model is a little bit like the patronage model, where a wealthy patron will pay an artist’s expenses in return for his artistic output. But Koons flipped that model: he had the collectors working for him, more than the other way around. They weren’t calling the shots: he was. (One Koons collector told me recently that he once made the artist an offer: he’d pay double the asking price, if Koons guaranteed that he’d never come back and ask for more. No dice.)
Koons’s model only works, of course, in a commoditized art world where prices are constantly rising.
Yes. Koons model only works in a rising market. But the art he makes is hardly commoditized, if that word is to have any meaning. It’s cost is directly related to its non-commodity status. Commodities are plentiful and fungible. Koons rejects much of the art his workshop produces because it doesn’t meet his standards. That’s hardly fungible. More to the point, if Koons’s market disappears tomorrow—and it easily could—there will be no contagion, no cascading repercussions. All that will happen is that some very rich people and museums will now own shiny, colorful objects that cannot be sold.
Someone might have to sell another asset to make good on a loan or a few heirs might find themselves with less of an inheritance. Other than that, life will go on.
Jeff Koons: a master innovator turning money into art (The Guardian)