Home > neoclassical economics > Economics and the value of art

Economics and the value of art

from David Ruccio


Neoclassical economists don’t have a lot to say about the value of art.

Basically, they start from the proposition that a work of art, such as Picasso’s “Les femmes d’Alger (Version ‘O’),” is often considered to have two different values: an aesthetic or cultural value (its cultural worth or significance) and a price or exchange-value (the amount of money a work of art fetches on the market). They then demonstrate that, within free markets, individual choices ensure that the price of art generally captures or represents all of the various dimensions of value attributable to the work of art, rendering the need for a separate concept of aesthetic or cultural value redundant. Therefore, on their view, Picasso’s painting is “worth” the record auction price of $179.37 million.*

But the Wall Street Journal (gated) observes that yesterday’s sale of other paintings—including Mark Rothko’s “Untitled (Yellow and Blue)”—reveals something else:

Some paintings act like object lessons in tracking the global migration of wealth, bouncing from one owner to the next in timely turns. Such was the case Tuesday when Sotheby’s sold a $46.5 million Mark Rothko abstract that previously belonged to U.S. banker Paul Mellon and later to French luxury executive François Pinault.

All night long, Sotheby’s sale demonstrated the power that the younger, international set is wielding over the art market, pushing up brand-name artists and newcomers alike. Bidders from more than 40 countries raised their paddles at some point during Sotheby’s $379.7 million sale of contemporary art, and the house said bidding proved particularly strong from collectors in Asia and across Latin America.

Clearly, the ever-expanding bubble in high-end art is predicated on the extraordinary amount of surplus that is being captured by a tiny number of individuals at the very top of the world’s distribution of income and their willingness to spend a portion of it on “vanity capital.”

As Neil Irwin explains,

Let’s assume, for a minute, that no one would spend more than 1 percent of his total net worth on a single painting. By that reckoning, the buyer of Picasso’s 1955 “Les Femmes d’Alger (Version O)” would need to have at least $17.9 billion in total wealth. That would imply, based on the Forbes Billionaires list, that there are exactly 50 plausible buyers of the painting worldwide.

This is meant to be illustrative, not literal. Some people are willing to spend more than 1 percent of their wealth on a painting; the casino magnate Steve Wynn told Bloomberg he bid $125 million on the Picasso this week, which amounts to 3.7 percent of his estimated net worth. The Forbes list may also have inaccuracies or be missing ultra-wealthy families that have succeeded in keeping their holdings secret.

But this crude metric does show how much the pool of potential mega-wealthy art buyers has increased since, for example, the last time this particular Picasso was auctioned, in 1997.

After adjusting for inflation and using our 1 percent of net worth premise, a person would have needed $12.3 billion of wealth in 1997 dollars to afford the painting. Look to the Forbes list for that year, and only a dozen families worldwide cleared that bar.

In other words, the number of people who, by this metric, could easily afford to pay $179 million for a Picasso has increased more than fourfold since the painting was last on the market. That helps explain the actual price the painting sold for in 1997: a mere $31.9 million, which in inflation-adjusted terms is $46.7 million. There were, quite simply, fewer people in the stratosphere of wealth who could bid against one another to get the price up to its 2015 level.

More people with more money bidding on a more or less fixed supply of something can only drive the price upward. On Monday, the auction was for fine art. But the same dynamic applies for prime real estate in central London or overlooking Central Park, or for bottles of 1982 Bordeaux.

The pool of “potential mega-wealthy art buyers” has indeed expanded but it’s still a infinitesimal fraction of the world’s population. Still, it’s enough to set record prices in recent art auctions, which (along with real-estate and fine-wine markets) thereby serve as a window on the grotesque levels of economic inequality we are witnessing in the world today.

But there’s another aspect of the Wall Street Journal story (and of many other articles I’ve read about recent art auctions) that deserves attention: the worry that the highly unequal distribution of income and wealth is migrating out of the West—to the East (especially China) and the Global South (particularly Latin America). It’s a worry that the cultural patrimony of the West is being exported (or, if you prefer, re-exported, after centuries of plunder of the empire’s hinterland) as the surplus being generated within the world economy is increasingly being captured by individuals outside the West.

I wonder, then, if this worry (about the migration of wealth and art) will ultimately be reflected in Western neoclassical economists’ long-held celebration of free markets—and if will there be a new round of preoccupation about the differences between market and aesthetic value, as the demands of new buyers from outside the West succeed in determining ever-higher prices for the art (and utilizing the surplus) the West has long claimed as its own.

*For other mainstream economists, if art’s cultural value is not adequately represented by its exchange-value (because, for example, art has “positive externalities,” that is, benefits to society beyond what is captured in the market price), then there is room for public subvention of art and of artists. And that ends up determining the limits of debate within mainstream economics: the neoclassical view of free private art markets (when the two values are the same) versus the alternative view in favor of public support for the arts (if and when they are not).


  1. May 15, 2015 at 4:37 pm

    I will be glad to send to anyone interested the PDF of a short conference I have delivered at the Universities of Oporto and Marseilles on «The Work of Art and the Labour Theory of Value»…

    • Norman Rutherford
      May 15, 2015 at 10:12 pm

      Fonseca-Slatter — yes, thank you, I would be very interested in reading your paper, “The Work of Art and the Labour Theory of Value.”

      And Thanks to David Ruccio for your insights into the absurdities of the art collection world. But what about the economics of contemporary art and music? This is a somewhat different but related situation, no? Here are a few perhaps obvious insights — and BTW, i am not an economist, but a musician with a keen interest in economics, so i apologize in advance for the likely naivete of my comments.

      I have a friend who is a painter. He attended a prestigious art institute several decades ago, and in his first painting class the teacher started by saying, “Art is not an economic choice; it is a lifestyle choice.” He went on to warn the students that the actual reality of taking up art as a primary vocation would likely cause significant ongoing economic and social hardship for them. As a middle aged composer, i realize that this reality is no less true in the music or performance world than it is in the visual art world.

      In one sense, a simple view can be put forth that this is supply side economics at work — because so many people are drawn to trying their hand at making art or music (at least initially), there is simply too much supply for the demand and so prices are kept very low, at least until you reach the mega-star level. And mega stars are a creation of the publicity machines of a few large global businesses — the profit margin of selling a few artists to millions of people is much higher than selling thousands of products to the same number of people. Even in the ‘fine arts’, the success of people like Julian Schnabel is more about successful marketing than anything else — just marketing directed at the ‘elite’ instead of ‘the masses’.

      So you have the ultra rich and famous artists who get paid very well because rich collectors have identified them as ‘must haves’, and then you have everybody else who get paid next to nothing. If the middle class in general has been hollowed out over the past couple of decades throughout the developed world, art and music are certainly on the forefront of that trend.

      I am in my mid-fifties and this has always been the reality. Most of us pay the rent by having a ‘day job’, which may or may not be related to our art or music. Bach had his job playing organ in the church, but Charles Ives sold insurance — and most of the Jazz musicians you’ve ever heard of spent most of their lives getting by by playing for pocket change every night and teaching private lessons by day. And unless you have a job in one of the top 30 or so orchestras in the world, as a classical musician you most likely make your living as a music teacher.

      So clearly what’s going on here is that many artists allow a level of exploitation that would be unheard of in most other professions because their work somehow seems ‘essential’ to them in a way that it does not with many other professions. In what other profession would someone develop technical skills, working many hours a day over the course of many years, only to offer the fruit of this work for minimum wage or less (when you calculate in all the hours of preparation and work that go into creating a good concert or work of art)?

      Clearly this desire makes them ripe for exploitation, especially since the passion to do it usually over-rides any efforts at labor organizing (which most artists, despite being predominantly liberal politically, are disinclined toward). So why do artists behave this way?

      For most of human history art and music were never considered a ‘profession’ at all. Only with the development of classical cultures did the every day creative activities of people begin to be differentiated, tiered, and treated like a profession. With the creation of royalty and an elite class there began to be completion for aggrandizement, and a desire by those in power to possess and hoard access to the society’s most beautiful objects and entertainment.

      Most people in early societies played music, danced, and made art of some kind as part of their daily lives. Art seemed as essential to human life as language — everybody learned to talk, everybody learned to play an instrument, sing, draw a figure, make a basket or pot. But once you have court artists and musicians living reasonably well off their work in the palaces of kings and queens, competition begins to develop skills to impress the elite, get out of the field, and move up the social ladder.

      But of course there are only so many spots for the newly formed creative class in the palaces, and a huge supply of people with some pretty decent skill in some form of music or art making. It’s a lottery situation to make it to that level, and if you don’t — well, you’re still a farmer who can draw a really awesome ox. This is the beginning of the division between ‘classical’ and ‘folk’ art and culture — for better or worse (and in the balance I would say worse — the revelations of Bach, Michelangelo, Mingus, Picasso, et al notwithstanding).

      In the end, like with many things, i think scale matters tremendously, and large scale societies with top heavy elite classes will never, in the aggregate, function well economically for artists, no matter how you organize the economies.

      So i would amend the statement made by my friend’s professor a bit; “Art has never been an economic choice, but remains, as it always has been, a choice made from the heart. If you secretly think this is going to be your path to fame or fortune, or even a decent middle class life, you are better off playing the lottery.”

      Norman Rutherford

      • May 17, 2015 at 3:45 pm

        Norman Rutherford, how I shall I send you the PDF?…
        Strictly speaking it is not an «academic paper».
        Having been an IBM professional for many, many, years I got used to make presentations without a written script. Only visual support (words, sentences and images).
        But I believe the presentation is comprehensive enough for the purpose of covering the subject of «theories of value» and «the work of art». From the classics of Political Economy to contemporary authors such as Samuelson.
        One basic tenet of my thesis is that the «marginalist» approach to value is basically a static instance (a snapshot, if you will…) of a more compreensive approach: that of the Labor theory of value.
        The other issue is the dual (and complementary rôle) of «prices» and «values»… To me (and I guess to others as well…) prices are instrumental in the capture of value. And this is crucial for the understanding of wildly varying prices of apparently similar «goods» and «services».

    • Ack Nice
      May 16, 2015 at 9:01 am

      I’ll read it. Send me a copy – payjustice at fastmail dot fm

      The poor child searches for food while the rich search for – an appetite.

      Murder the diabolically stupid idea to allow wealthpower giants on this planet.

      • May 17, 2015 at 3:49 pm

        Ack Nice, see my reply to Norman Rutherford.

    • David F. Ruccio
      May 16, 2015 at 2:04 pm

      Fonseca-Statter, I’d love to take a look at your paper. (When I lecture on Marx, I use art—such as Picasso’s “Les femmes d’Alger (Version ‘O’)”—as an example of a non-commodity, since no amount of society’s abstract labor can create another. Its exchange-value is based not on the production value of a commodity but on the private ownership of an object.)

      Norman Rutherford, these are all important issues and questions. I’ve written about the economic situation of artists (https://anticap.wordpress.com/2014/07/15/portrait-of-an-artist/) and the fact that Alan Krueger chose to give his talk (which included the first mention of the Great Gatsby curve) at the Rock and Roll Hall of Fame (https://anticap.wordpress.com/2014/02/24/winner-take-it-all-economics/).

      From Krueger: “The music industry is a microcosm of what is happening in the U.S. economy at large. We are increasingly becoming a ‘winner-take-all economy,’ a phenomenon that the music industry has long experienced. Over recent decades, technological change, globalization and an erosion of the institutions and practices that support shared prosperity in the U.S. have put the middle class under increasing stress. The lucky and the talented – and it is often hard to tell the difference – have been doing better and better, while the vast majority has struggled to keep up.”

      There’s lots more to be said but that’s a start. . .

      • May 17, 2015 at 3:54 pm

        Yes, the use of art (visual art, performing arts, music…), is a good starting point for any economist (who is not ashamed of also being a social scientist…) to get to a comprehensive understanding of the economy.
        See my reply to Norman Rutherford and let me know how I shall deliver the PDF to you…

    • David Sheegog
      May 17, 2015 at 7:42 am

      Yes, would like the pdf. Very interested in Labor Theory of Value, Marx’ central theory in Das Capital.

    • Norman Rutherford
      May 18, 2015 at 3:45 am

      thank you Fonseca-Statter. you can send the pdf to: no.rutherford@gmail.com.

      looking forward to reading it.

      Norman Rutherford

      • May 18, 2015 at 8:37 pm

        My gmail does not recognize the address indicated…

  2. Ack Nice
    May 16, 2015 at 9:07 am

    Ogden Nash:

    They take the paper and they read the headlines,
    So they’ve heard of unemployment and they’ve heard of breadlines,
    And they philanthropically cure them all
    By getting up a costume charity ball.

  3. May 17, 2015 at 10:26 am

    Market blunder
    Comment on ‘Economics and the value of art’

    Ricardo excluded the pricing of ‘rare statues and pictures, scarce books and coins’ from his formal theory of value and called them non-produced consumption goods (Mandler, 1999, p. 68). The labor theory of value was always meant to apply to produced consumption goods only. Subjective value theory blurred this distinction.

    Since non-produced consumption goods have indeed been produced, albeit some time ago, their price has to be determined in the secondary market. The pricing in the secondary market is entirely different from the pricing in the primary market. Hence it is not correct to speak of THE market without qualification. As Tobin put it: “’Market’ is one of the most overworked and imprecise words in economics.” (1980, p. 796)

    It is one of the greater blunders of Orthodoxy to apply the silly supply-demand-equilibrium plaything across the board. The price determinants of the primary and the secondary market are entirely different. For the correct market theory see (2011), in particular the section ‘Wealth creation in the secondary market’.

    Egmont Kakarot-Handtke

    Kakarot-Handtke, E. (2011). Primary and Secondary Markets. SSRN Working Paper
    Series, 1917012: 1–26. URL http://ssrn.com/abstract=1917012
    Mandler, M. (1999). Dilemmas in Economic Theory. Oxford: Oxford University Press.
    Tobin, J. (1980). Are New Classical Models Plausible Enough to Guide Policy? Journal of Money, Credit and Banking, 12(4): 788–799. URL http://www.jstor.org/stable/1992034

  4. May 17, 2015 at 11:20 am

    Is there an established theory of what kind of good art is? If industrial goods are captured labour and resources, what is fine art?

    To me it seems to be captured empathy, or captured attention, or something like that. An aspect of human interaction captured in an object. Any thoughts?

    Why do we need an answer? Because there are many rare things that are valueless. What kind of good is the base value of art, which is then bid up by wealth?

    • May 18, 2015 at 8:47 pm

      I do not think there is an «established theory of what kind of good art is». My view is that if something is produced for the specifi purpose of being sold, then it is a «good».
      This may be the performance of a medical act, a ballet, a number in a circus, a painting or sculpture, a song… Or a pound of flour…
      The crucial referent is «for sale» in a market place…
      What comes next is the «degree» of dificulty or refinement in the performance or execution or manufacturing of whatever…
      In my view «difficulty» ends up equating «cost of production» (in materials and human labor…)… This human labor in its turn also has its own «costs of production», such as time and effort spent in developping skills…
      Again, in my miew, all the items such as empathy, human interaction, capturing attention, are part and parcel of that «human effort» materialised in the «thing» as a good.
      Another crucial distinction to bear in mind – in my view – is the systemic function of «prices» and «values», where prices basically serve as instruments to capture value.

  5. RG Narasimhan
    October 6, 2018 at 3:54 pm

    Hi Fonseca, do you mind sending me a copy of your paper to rgnarasimhan@gmail.com? I would like to send this to my undergrad student daughter.

  6. October 8, 2018 at 6:04 pm

    @Egmont Kakarot-Handtke, my compliments on a well thought paper. I take a «radically» different approach (a different paradigm, if you will…) to the problem, but the conclusions arrived that, seem not to be «radically» distinct.

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