The Economics of Art: Investing in the Artistic World
Economists have long studied the arts, yet this book marks the first attempt to analyze art as an investment asset class. General economic principles apply when considering arts as investments – including scarce means and tradeoffs.
Those looking to invest in art should start by setting aside an initial sum and visiting local galleries and art fairs in search of up-and-coming artists.
Many artists cannot make their living through art alone and must rely on other sources for financial support. A wealthier society offers more options for finding other sources of income for artists; art markets may sometimes fail to recognize their worth, yet a wealthy economy tends to be more resistant against such decisions than one with lesser resources.
Value of works of art does not solely depend on its creation cost but on buyers’ perceptions of its social status, relative importance to other works and impactful legacy for future generations. Such perceptions account for its high prices.
This book also explores how the arts, from opera and theatre productions to museums and cultural heritage collections, have an invaluable role to play in shaping societies. Finally, it looks into how public policy supports artistic fields.
As society becomes wealthier, artists can afford to take on more projects. They have the freedom to choose which ones they pursue, leaving unsatisfying ones behind without losing out financially or being penalized by the state for doing so. This provides artists with greater artistic expression.
Investors can benefit from economic freedoms offered by investing in art. Art is uncorrelated to stock market indices and can provide an untaxed store of value.
However, investors should avoid being seduced by the high returns touted by art-focused indices. They should select their collection carefully and diversify it in order to expect returns more similar to bonds than stocks. Furthermore, investors should expect markup fees when dealing with brick-and-mortar galleries; although these gatekeepers must generate income by selling artists’ works at markup prices they can provide invaluable services that help investors identify promising young artists.
Art collectors typically select pieces that hold significant meaning for them and choose artists they admire and respect, reflecting how art investing is more of an emotional investment than an asset class.
Arts can serve to demonstrate more general economic truths. Like any industry, the arts are subject to supply and demand dynamics; similarly, artists recognize trade-offs when creating works. Furthermore, technological progress lowers material costs making arts more accessible to enthusiasts and would-be professionals alike.
Additionally, art provides uncorrelated returns, making it a good way to diversify a portfolio. However, artworks are illiquid investments and therefore should not be expected to convert quickly into cash; therefore, art should only be recommended for short-term investing goals and when looking for higher-yield investments like stocks and bonds instead.
Technology has enabled more people to pursue art. This has opened the market up to an increasingly larger group of enthusiasts and potential professionals than was possible in previous ages. Even though art represents only a relatively minor part of an economy, its contribution can have significant effects on local economies by providing jobs and spurring spending in areas such as retail, hospitality, food & beverage etc.
Art can also serve as an important source of cultural inspiration, fuelling innovation in various fields such as business, medicine, science and education. Furthermore, owning art provides symbolic value – either because one admires an artist or as a display of wealth and social status.
Even though artists play such an essential role, economic analysis often overlooks their work. A mezzo-economic approach could provide numerous advantages to them by helping them present their case more persuasively.