The sale of Vincent van Gogh’s Irises for $53.9 million at a New York auction shocked the art world and reflected economic changes that led to the use of art as a commodity traded by the rich.
Like the stock market, the prices of artworks began rising during the mid-1980’s, reaching levels never reached before. Art became an investment, more prestigious than pork futures but, for many buyers, having the same ultimate reward—profit. Prices began to soar around 1983, with a few Renaissance and early modern paintings selling for around $10 million, but prices truly skyrocketed after changes were made in the U.S. tax code in 1986. Because of these changes, American citizens who donated artworks to museums were allowed to deduct from their taxes only the prices they paid for the works rather than the current market value of the works. This removed much of the incentive for individuals to donate art, and with art prices moving higher, many high-quality paintings that would previously have been donated were put on the auction block, driving prices higher still.
Van Gogh’s Irises.
Stock markets around the world were reaching new record levels, and many of those made newly wealthy by this development put some of their money into art. Record prices for artworks began to be set regularly. Vincent van Gogh’s Bridge of Trinquetaille
Pablo Picasso
Also in 1988, sculptor Alberto Giacometti’s
Walking Man
Rebus
The twentieth century record was broken again in May, 1989, when a 1901 Picasso self-portrait sold for $47.9 million at Sotheby’s New York. The seller was Wendell Cherry, the president of Humana Incorporated, a large hospital management corporation, who had bought the painting for $5.8 million in 1981. At the same sale, Paul Gauguin’s
Mata Mua,
Multimillionaires were not the only people who could afford to invest in art; prosperous professionals could also hope to make money through art investments. The market for prints, traditionally far more sluggish than that for painting and sculpture, was also bustling. Prints by brand-name artists such as Andy Warhol
By the end of 1988, the speculation in art had reached such a feverish intensity that many investors became nervous, sensing that the art market might be a bubble about to burst. One indication that it might was the return to market of Irises. It had emerged that the buyer, Alan Bond, had made arrangements with Sotheby’s before the auction to borrow up to half the purchase price, and a storm of controversy had arisen. Bond’s own business was in trouble. He proved unable to pay for Irises, and the painting went back to the auction block. It was bought by one of the few museums with enough money to afford such expensive art—the J. Paul Getty Museum in California, which had a $3.5 billion endowment.
Sales for the art auction houses reached record levels in 1989, with Sotheby’s sales at $2.93 billion and Christie’s at $2.08 billion. The greatest excess came in May, 1990, when van Gogh’s Portrait of Dr. Gachet,
Au Moulin de la Galette
Despite these record-setting amounts, prices were moving downward. A large portion of artworks began to sell for 20 to 30 percent below their low estimates. More works were falling short of their minimums and not being sold at all. The downward trend grew stronger in the fall of 1990, when about half of contemporary art at auction did not sell, including a number of paintings by Andy Warhol, whose work had been considered a safe bet. The stock of the auction houses plummeted with the fall of the market; Sotheby’s stock fell from $37 a share in 1988 to $10 a share in 1990.
Until the 1980’s, many in the art world looked down on the act of buying and selling art for a quick profit. Making a profit from art this way was also difficult, as finding a buyer willing to pay a good price took time, and the dealer’s commission often totaled a third of the price. Prices for artworks were driven up by a combination of factors, some of them long-term, some of them transitory. Short-term factors included the economic boom of the 1980’s—which created vast pools of disposable income in the United States, Japan, and Europe—and the spreading belief that art was a smart investment, as it would only increase in value. Medium-term factors included an expanding art audience around the world—a result of increased attention to art in schools and the media—and an increasing appetite for art as a status symbol for the newly wealthy. During the height of the boom, one dealer told The New York Times that “art comes right after the mink and the Mercedes.”
The interlinking of world economies and information structures also played an important role, as European, Japanese, and American buyers all quickly found out about art for sale and decided whether or not to bid. The decline of the American dollar in the mid-1980’s, combined with the rapid growth of European and Japanese economies, made art bought in dollars very attractive.
The most important long-term factor was the rarity of top-notch art for sale. With most first-rate works of art in museums or long-held private collections, when the changes in American tax laws helped to push top-quality pieces onto the market, those works became objects of intense competition, elevating prices throughout the market. This was particularly true of work by van Gogh, most of whose paintings had long been in museums. Van Gogh also had cachet because of his place in popular mythology as the quintessential tortured modern artist.
Along with the vast concentrations of wealth generated during the 1980’s, another factor that precipitated the boom in art prices was the purchase of Sotheby’s auction house in 1983 by American real estate investor A. Alfred Taubman. Taubman began marketing art in modern ways, sending lavishly illustrated catalogs to wealthy potential bidders and arranging credit terms in advance of the auctions.
Some analysts have argued that the late 1980’s recession in the U.S. economy was largely to blame for the price decline that followed the boom. Others have blamed the greed of collectors, auction houses, and galleries and the resulting unrealistic price expectations, which could not be sustained. The prices of works widely regarded as masterpieces fell only a few percentage points, but prices of other work fell by 40 percent and more. Prices were driven down even further in the fall of 1990 as the creditors of some art speculators forced them to put artworks on the market. Prices were also lower because Japanese buyers had left the market. Economic difficulties and a stock market plunge had hit Japan, but equally important were the scandals that ensued when it emerged that some Japanese buyers were using art sales for money-laundering purposes.
When the market in art was rising, some art galleries were pleased because they could raise the prices of the works they sold. Other galleries were unhappy, because high auction prices meant that sellers placed their resale works with the auction houses rather than with galleries. Because auctions were a resale market, however, art dealers continued to sell freshly minted art. Like the speculators who bought much of the art during the 1980’s boom, however, many established galleries overextended themselves, and a glut of new galleries opened. In 1986, there were almost 100 galleries in New York City’s SoHo art district; in 1988, there were about 250, and by 1990, many of those galleries were closing. With auction prices tumbling and the U.S. economy in recession, buyers stayed away in droves.
The boom in art prices was devastating to museums, particularly in the United States. Museums were pinched between the tax laws that discouraged donations and acquisition funds that lost their purchasing power as prices inflated. With prices for the works of such postwar artists as Rauschenberg and Johns selling for multiple millions, museums that collected contemporary art often chose to concentrate on younger, lesser-known artists. Other museums used the controversial practice of “deaccessioning,” or selling off artworks from their collections, to pay for works they wished to buy. Often, the works hanging on the walls were the only source of quick, substantial capital a museum had.
Like the market itself, deaccessioning reached new heights in the 1980’s. Christie’s reported that twenty-eight museums deaccessioned through its sales in 1984 and 1985; in 1988 and 1989, that number reached eighty-eight. When a museum sold a work, it usually went into private hands, often in a different city, and many critics felt that some museums were gutting their cities’ cultural heritages. New York’s Guggenheim Museum
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Heilbrun, James, and Charles M. Gray. The Economics of Art and Culture. 2d ed. New York: Cambridge University Press, 2001. Scholarly work presents a systematic analysis of the economics of the fine and performing arts as well as a discussion of public policy toward the arts. Chapter 9 is devoted to the market in works of art. -
Hughes, Robert. “Sold!” Time, November 27, 1989, 60-65. Presents a witty look at the price bubble just after it popped. Argues that the average person lost during the boom because museums declined in quality and likens the commercialization of the art market to the strip mining of culture. -
Lee, Susan. “Greed Is Not Just for Profit.” Forbes, April 18, 1988, 65-70. Focuses on the financial and marketing end of the boom. Examines changes in the art market for explanations of the price surges and cites increased liquidity, with lower transaction costs and better financing, as causes. Also discusses the marketing strategies of major auction houses. -
Rosenbaum, Lee. “The Anxious Acquisitors.” Art News 88 (March, 1989): 144-151. Looks at the role of art museums during the price boom, which was essentially that of spectator. Covers the donation crisis, focusing on its effect on a few museums and how the tax changes worked against them. Offers an in-depth discussion of the problems faced by museums as well as their options, including deaccessioning. -
Virshup, Amy, et al. “Signs of the Time.” Art News 87 (April, 1988): 101-123. Series of articles examines the changing roles of art and artists at a time when art was becoming more expensive and more popular. Does not specifically address the trend to art as a commodity but looks at the effects of the trend on peripheral issues, such as the role of museums in people’s lives and how the role of artists changes in an increasingly monied and complex art world. Also discusses how the European art scene differs from that in the United States, especially regarding commercialism. -
Walker, Richard W. “The Saatchi Factor.” Art News 86 (January, 1987): 117-121. Focuses on the role of one influential collector, Charles Saatchi, just as the art market was going into overdrive. Saatchi’s buying influenced market trends for contemporary art, as many investors followed his lead.
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