Below is a small part of a long argument I make on Quartz this morning in advance of the Autumn art market. The art market could soften substantially this Fall and we would still be in the midst of a huge global market for art:
There are some very good reasons to believe that there have been important changes in the art market that reflect some broader changes in the global economy. I’d like to suggest that one of the reasons art has become more and more valuable over the last decade and a half—but has accelerated even more rapidly in the years since the credit crisis—is that art is now viewed by the very rich as an alternative currency.
In monetary terms, a reserve currency is money that gives you easier access to the dominant economy. Throughout history, the hegemonic power has seen its currency become the favored medium of exchange. Those who are not residents of the dominant power also acquire and hold its currency to be sure they can gain access to goods and services they might not be able to obtain with their own weaker currencies. For much of the 20th century, the US dollar has filled the role of the world’s reserve currency. Before that, it was the British pound and at times the Euro and the Yen have both functioned in the same way. Citizens of nations all over the world hold dollars because the value the dollar is considered stable and safe.
In this sense, owning art over the last decade and a half has gone from being a particular interest among some of the world’s affluent to become a symbol of membership in a global class of the world’s elite. In the past, only a small percentage of the rich were willing to devote the time and resources necessary to become art collectors. But as more and more of the world’s wealthiest began to imitate their peers and purchase art collections, art became a luxury purchase. Then it became an investment. With the influx of new collectors, an industry grew up around providing expertise, advice and financing. That industry also fueled the growth of international galleries and a global circuit of art fairs.
This new supra-national domain, the art world, functions as its own domain. It’s residents are anyone who joins the migratory circuit. It’s currency is art. […]
Buying art may be unfamiliar to most people. Keeping value in a physical asset is not. The simplest thing to do when you don’t trust the financial system is keep your wealth in physical currency. The US eliminated $1,000 and $10,000 notes nearly 50 years ago. Today, the government doesn’t see a legitimate need to transact in those larger denominations. But in Europe you can get still your hands on a 1000 Franc note in Switzerland and a 500 Euro note.
Many Europeans (and others) do. We know that because a full one third of the entire value of the Euro’s currency is in 500 Euro notes. Few ordinary consumers ever see those notes or would ever use them. It’s not even clear one could even walk into a store and make a purchase with a 500 Euro bill. Their only value is as a marker. And they’re used primarily by those who do not trust the financial system.