Reacting to the news of two new Russian art funds, Reuters financial blogger Felix Salmon declares the art market broken:
The art market is broken, we all know that — but so long as everybody knows that the market is broken, there’s a limit to how aggrieved they can reasonably become if they go in with the idea of art being some kind of investment, and end up losing money.
The problem with any kind of regulatory framework for art dealers or even for art funds is that it gives them a veneer of legitimacy which they would then use to woo a huge new class of art buyers. The art market is minuscule in relation to more legitimate alternative investment classes, and even a small amount of “asset allocation” out of say old-school hedge funds and into art would create a lot of unnecessary disruption in the art market, mainly benefitting today’s dealers.
Salmon’s evidence for the universally accepted idea that the art market is broken? His own blog post from five years ago that outlines the two-tiered structure of the art market where dealers sell for lower prices to control where an artist’s work goes and auction houses and the rest of the secondary market tries to maximize price.
In the five years since Salmon wrote that post, the secondary market has grown and the pattern of sales has turned further toward secondary sales. We’ve also seen a massive rise and fall and rise again in art prices. That seems more like a market that is functioning, not one that is broken.
Works of art are being distributed and re-distributed throughout the world using the fairly efficient method of market pricing. The only thing that seems to be broken for Salmon is idea of using art as an asset. That may indeed be true. And anyone who invests in art should understand that it’s not an easily traded financial instrument–and certainly not for the feint of heart.
So maybe the art market is doing exactly what it should be doing: frustrating those who want to make easy money.