How Auctions Drive the Art Market

The first chapter of Sarah Thornton’s Seven Days in the Art World is on auctions, and it’s a corker. Thornton not only has sharp insights, she also expresses them beautifully:

The hammer punctuates and passes judgment. It acts as a full stop to the end of every lot, but it is also a little punishment for those who didn’t bid high enough.

She can cut to the chase devastatingly when she teases apart the difference between aesthetic and financial value:

A "good Basquiat," for example, was made in 1982 or 1983 and contains a head, a crown, and the color red.

Thornton also quotes Josh Baer making the crucial distinction between caring about the secondary market and buying as an investment:

"The auctions give a sense that most of the time, most things will sell. If people thought they couldn’t resell–or that if they died, their heirs couldn’t sell–many wouldn’t buy a thing."

This doesn’t mean that buyers at auction are "acting like investors", but it does mean that price action matters, even if you’re a collector who has no intention of selling. Especially now that hedge-fund managers play such an important role in injecting liquidity into spending money in the art world, it’s important to realize what has always been the case: that all collectors mentally mark their collection to market on a regular basis. In this sense, art is like housing: I might intend to stay in my apartment until I die, but I’m still interested in how much it’s worth. And a collector who has made a large mark-to-market profit on his collection is much more likely to continue to spend large sums of money on art than one who has made a large mark-to-market loss.

For all that the big primary-market dealers love to kvetch about the auction houses, then, most of them could barely operate were it not for the fact that Sotheby’s and Christie’s loom in the background. The auction houses perpetuate the fiction that art is sellable, and that fiction is a great help in persuading collectors to buy.

In reality, of course, the auction houses reject most of the art that is offered to them for auction. You can’t just rock up to Sotheby’s with a canvas under your arm and get it into a prestigious evening sale, or even a day sale, for that matter. If it’s by an artist who’s out of favor this week, they might not accept it at all, and your best hope for monetizing that asset is to go back to the gallery which sold it to you (should the gallery still exist) and start talking fast. But if that gallery already has a substantial stock of the artist in question’s work, they’re not going to be falling over themselves to buy up another example.

I’d love to see a real secondary market in art, where anybody could consign any painting and anybody could buy it. That would give a much better idea of real values than the highly artificial and choreographed evening sales at auction houses (which, incidentally, are responsible for all of the seemingly impressive rise in the Mei-Moses art indices). But of course since such a real secondary market would not be in dealers’ interests, you can be sure it’s not going to happen.

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