[intro]Souren Melikian Predicts the Coming Art Supply Collapse[/intro]

When Souren Melikian gets a bone in his teeth, he rarely lets it go. During the height of the boom, his worldview was that auction houses were hoodwinking buyers into thinking mediocre objects were valuable treasures. Today, the villain remains the same–the auction houses–but the villainy has changed: the art market refuses to acknowledge the boom in demand for quality works.

In one sense, Melikian is spot on. He remains the most articulate–and persistent–advocate of the growing demand for quality works of art. That demand is creating scarcity:

Long relatively stable, the sum total of works of art from the past available for sale has been shrinking at an accelerating rate in the last two decades, absorbed by museums at the top, atomized in the lower echelons by the exponential rise of world demand.

The multiplication of buyers has been geographical (the Far East and Middle East are now taking part in the game on an unprecedented scale) as well as sociological. Partly at the instigation of the leading international auction houses, which are eager to attract big money, thousands of new buyers have been persuaded to enter the auction arena, some acquiring works of art as status symbols and others buying them like money men play the stock exchange.

This further accelerates the dwindling of the number of works of art still floating in the market. Truly great Impressionist pictures appear at the rate of perhaps half a dozen a year. Old Master drawings, which could be bought in batches of 20 or 30 per lot at Christie’s and Sotheby’s frequent auctions in the 1960s, are now seen two or three times a year.

So far, so good. But here’s where things get a little off-kilter where Melikian’s perfervid fixation on the auction houses begins to cloud his judgment:

Experienced collectors know, and recent buyers with a sound instinct suspect, that the market for the art of the past as it existed until recently will inevitably draw to a close in the foreseeable future, giving place to a few isolated transactions at distant intervals. It is this fundamental urge to grab a chance while it is there that has so far made the art market spectacularly diverge from the rest of the economy. Auction-house professionals cannot admit that, not even to themselves. It would be tantamount to forecasting the demise of their present set-up.

Translation: the smart guys with taste are buying up everything good because it will all be gone soon and the art market will come to a grinding halt.

The bullishness of the market, caused as it is by the rarefaction of art for sale, is not good news for auction professionals. And as the policy of their spokespeople is to dwell on the bright side of life, they do not much talk about it.

Its not entirely clear why Melikian blames the auction houses for both creating this drought and refusing to recognize it. Further, Melikian treats a sale as tantamount to destruction of the property. In fact, the opposite seems to be taking place.

Art is being bought and sold in the midst of an economic contraction because the previous decade of art buying has created a perception of value–and potential value–that did not exist before. High-quality works continue to sell. Many of the works sold in the last year were sold in the boom period before the economic contraction. Melikian uses the Degas dancer as an example of his drought but it was bought in 2004, hardly a buried treasure disappearing into a museum forever. Far from wanting to ignore the demand for such works, the auction houses seem to be instrumental in both creating and satisfying it.

Auction Houses and Their Taboos (New York Times)