Why Is Art So Damned Expensive?

A pile of stools for $575,000. A cabinet full of surgical instruments for a cool $2.5 million. The global economy’s in a tailspin, but among the world’s elite collectors, works are selling for record prices.


Walking around Miami Beach last weekend, taking in the 10th edition of its extravagant Art Basel art fair, you sensed something strange in the air. Patou’s “Joy” drifting off the pashmina? Polished walnut wafting out of the Bentleys? More basic than either: the ineffable aroma of money itself, rising from the art out for sale. By the end of the first day, a customer at Mary Boone’s booth had spent $575,000 for a pile of battered stools turned into a nest—by Ai Weiwei. A blue lozenge on a white rectangle—by Ellsworth Kelly, on view at Matthew Marks—had gone for $1.5 million. A glass cabinet full of surgical instruments, by Damien Hirst, had sold for nearly $2.5 million at White Cube’s stand. Despite the big names attached to these objects—and whatever their artistic worth—any normal observer would immediately wonder: Stools, for half a million dollars? Three times that for some plain paint on canvas? Why is art so damned expensive?
There is a pile of simple, and basically unsatisfying, explanations. There’s scamming: The veteran New York dealer Arne Glimcher speaks of the “scuzzy” people who keep the Warhol market hot by manipulating his auctions. Simon de Pury, chairman of Phillips de Pury auction house, has counted a dozen other price boosters. He says a bigger picture is always worth more than a small one. He notes that you pay a premium for a piece once owned by someone famous. And he points out that something that has been shown in a museum is worth extra. But such explanations only tell us why one object might sell for more than another. They don’t tell us why so many buyers in Miami spend more on a picture than the rest of us spend on a house.
Despite the flatlined economy, the art market has been roaring. In the first half of this year, total worldwide art sales hit a record of €4.3 billion ($5.8 billion), up 34 percent from 2010, according to the French Web site Artprice.com. The same site reports that 663 works jumped past the million-euro mark during that period, 200 more than in the first six months of 2008, which once held the record.
The top art prices may have little to do with classic economics. Noah Horowitz, whose Art of the Deal is a crucial text on the subject, says in the long run your investment in art may only do about as well as your holdings in bonds—and comes with greater risk. (But, as one major New York collector put it, that’s not so bad, if you have nowhere else to store your income. And anyway, “bonds aren’t that good to look at.”) At this moment, when the 1 percent has the cash to burn, buying art is less about finance than about the cultural value of money, and of art. “A dollar is not a dollar is not a dollar,” says Viviana Zelizer, the great Princeton sociologist who wrote The Social Meaning of Money. The dollars spent in Miami are “cultural dollars,” Zelizer says, and that makes them obey their own rules. Below, five reasons why art defies economics:
“If I can’t sell something, I just double the price.” That’s what Ernst Beyeler, the great Swiss dealer who helped found Art Basel, reportedly said. Some people actually prefer to pay more than makes sense. Zelizer explains that, in all walks of life, we treat the biggest sums -differently, with special respect or even awe, than more-everyday money. “I think very often the price paid for a work is the trophy itself,” says Glimcher, the dealer.
In 2006, the crowds lining up to see a portrait by Gustav Klimt in the private Neue Galerie in New York weren’t there out of any fondness for the artist. They were there because they’d heard that the museum’s founder, cosmetics heir Ronald Lauder, had paid a record $135 million for it.
The sociologist Mitch Abolafia, who has made a study of Wall Street financiers, says that sometimes money speaks for itself. “A trader said to me one day, with glee in his eyes, ‘You can’t see it, but money is everywhere in this room. Money is flying around—millions and millions of dollars.’ It was a generalized excitement about money. Even I felt it.” That’s the excitement we all get from expensive art. One collector, who believes deeply that art should be bought for art’s sake, acknowledges basking in the “robust glow of prosperity” that his purchases give off once their value has soared.
The people who are spending record amounts on art buy more than just that glow. (And much more than the pleasure of contemplating pictures, which they could get for $20 at any museum.) They’ve purchased boasting rights. “It’s, ‘You bought the $100 million Picasso?!,’” says Glimcher. Abolafia explains that his financiers were “shameless” in declaring the price of their toys, because in their world, what you buy is less about the object than the cash you threw at it. The uselessness of art makes any spending on it especially potent: buying a yacht is a tiny bit like buying a rowboat, and so retains a taint of practicality, but buying a great Picasso is like no other spending. Olav Velthuis, a Dutch sociologist who wrote Talking Prices, the best study of what art spending means, compares the top of the art market to the potlatches performed by the American Indians of the Pacific Northwest, where the goal was to ostentatiously give away, even destroy, as much of your wealth as possible—to show that you could. In the art-market equivalent, he says, prices keep mounting as collectors compete for this “super-status effect.”
I asked the great New York collector Agnes Gund how she would feel about her artworks if their value suddenly halved. “I wouldn’t feel they would have changed,” she said, explaining that most of her pictures are promised to museums. Then I asked how she’d feel if their value doubled instead, and her story changed. “Obviously, it’s wonderful to see the price rise,” she said, since that’s confirmation of the object’s cultural worth.