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Returns from Art

Returns from Art

By Priyanka Dey

Edited by Liz Maria Kuriakose , Associate Editor, The Indian Economist

Art as a consumption good holds a sacred portion in indulgence possessions. Art commodities are often considered as a substitutable option to financial goods. Theoretically, during a financial crisis, the opportunity cost of art goes down and consumption should increase. However, history fails to embrace this logical equation. The recession in Europe led to the elimination of cultural finances and subsidies. For example, in the UK, cultural resources were cut down by 30% between 2010 and September 2011. The economic crisis creates a collateral damage to the market for art rather than resulting in an enhancement. Many galleries have suffered in Europe and some have even closed down.

Why does Economics fail in the art market? It is because of the assumptions regarding the returns from artistic commodities. Art is not only an investment but also consumption. The return from art consists of physic return and price return; only one effect will be incapable of explanations. The players are usually of extreme behaviour i.e. pure speculator for whom artistic good and financial instruments are of the same purpose or pure collector for whom an artistic piece conforms to the consumption effect. It provides additional benefits from ownership because the object’s ‘aura’ (see Benjamin, 1963) is separated; this being the ownership effect.

The elements which affect the borderline choice in procurement and holding art as an investment or as a consumption good, with the respective significances for financial returns are:

i) Varieties and flavours: The rivalry between contain and construct for illustrative powers determines which is valued more in trade. For example, portraits are of no interest to people apart from family and close company but when it is drawn by a famous artist, the person captured is of lesser importance than the picture is traded.

Religious pictures signifying crucifixion, motifs aggressive to other religions, paintings of bloody war extracts, and other ‘politically incorrect’ pieces, are in less demand by private collectors.

ii) Social influence: The change in social concern creates specific requirements for art in the market. For instance, the demand for any painting from the Renaissance era will be in huge demand by pure collectors due to the growing development in research and significant discoveries from that period. Speculators can operate in this zone only if they are able to forecast the changes which are often very difficult.

iii) Risk: For pure collectors, financial risks do not matter. The reason behind this is pure physic benefits from art collections. Pure speculators leave the market when financial risks and unpredictability increases unlike pure collectors who buy and hold artistic pieces because they favour it and their interest is unbroken by upsurge of risks.

iv) Transaction costs: Interventions by government and unforeseen increase in the cost of selling art leads to emission of pure speculators from the market. For speculators the motive is selling and profit earning. However, this does not deter the pure collectors whose least motive is to sell acquired art.

In the existing literature, we find a lower bound bias in the evaluation of the market for art. For art is not explained from returns but the pleasure of owning it and the amusement from laying eyes over it. It is like irrationality of compensation principal in labor market, abetment cost calculation of environment or technology lead disputes in growth theory. Thus as an auxiliary method we should rather be looking into the rental fees of the artistic object. Rental fees are different from any kind of ownership utility i.e. it is just for the enjoyment of art. But due to the absence of a rental market for art this accounting is also not feasible. So, rather than determining the pure physical value, we should consider the marginal willingness to pay for enjoying art at a museum.

Passionate for love, economics, dance, fashion and living life. Hope to keep getting inspired in life. I believe bringing a change is the cause of our existence and every step that one takes change options in superstructure. Keen in deconstructing anything and everything. I believe we all know what we actually want and eventually achieve that and the rest that comes in the path is just knowledge creation .


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