Every year in early December contemporary art suddenly hits the headlines. The media is full of shock-horror stories about the latest excesses of the Turner Prize, the annual award organised by the Tate and sponsored by Channel 4, for the youngish (under 40) artist reckoned to have produced the most stimulating show of the past year (and by stimulating the judges usually mean shocking).
So Tracey Emin's bed littered with condoms and knickers; Chris Ofili's paintings finished off with elephant dung, and Martin Creed's light switch going on and off at timed intervals become the subject of much head-shaking about the excesses of artists and the inanity of the selection panel.
This year, the controversy has hit new heights, thanks to Jake and Dinos Chapman's work, Death, a bronze casting of two inflatable sex dolls in flagrante. For all concerned, it is a stimulating experience - the public at large have their prejudices about modern art confirmed, and the art establishment gets a flood of publicity and perhaps the odd convert.
Yet the controversy masks the true character of contemporary art. Most professional artists maintain the old traditions of working with paint on canvas, producing portraits and still lifes, landscapes and cosy genre scenes to satisfy the demands of a mainly middle-aged and middle-class market. The mainstream art world gets its time in the sun at the annual Summer Show at the Royal Academy, and the prosperity of its artists depends mainly on the state of the economy and the availability of surplus cash.
Most professional artists must work as part-time teachers to survive, but many - such as Ken Howard, with his safe nudes and Venetian views; Beryl Cook, with her outsize grotesque characters; and Jack Vetriano, with his threatening photo-realist scenes, heavy with sex and violence - can expect to sell out their latest batch at their dealer's opening night party, with each work priced at around £30,000. Works by US artist Jasper Johns have realised £92.8 million over the past three decades.
Best known for his paintings of the American flag, Johns was recently named best-selling living artist by Artreview magazine.
The irony is that this world is hardly noticed by the critics and totally ignored by the art establishment - the Arts Council, curators at leading museums and galleries, art schools, the intellectual commentators and the gossip columnists. For them, contemporary art is Emin and Ofili, it is 'concepts' rather than paint; it is the shock of the new; and, above all, it is Damien Hirst.
In the past decade, a new, vigorous contemporary art market has emerged based on cutting-edge, mainly conceptual art, which has created a sufficient stir to launch a new art movement, Young British Artists (usually abbreviated to yBa's), and made British art a significant player in the global market.
It has even penetrated the US, which with its financial muscle and adoration of the new, is the dominant player in the commercial art world. Today, contemporary art is not the art produced by working artists but the activities of a small group of mainly London-based artists and gallery-owners, patronised by a few big collectors and protected by the main museum, the Tate, in its many manifestations.
To its critics, contemporary art comes down to a handful of powerful personalities. There is Charles Saatchi, the former advertising guru who, influenced by his first wife, suddenly became the biggest buyer of the work of young artists of the age, spotting talent when it was still at art school - or had just graduated - and acquiring large bodies of work at low prices. There is Jay Jopling, the Old Etonian son of a former Conservative cabinet minister who set up White Cube, a Mayfair-based gallery (since moved to trendy Hoxton), signed up the most promising of the young artists and proceeded to win them shoals of publicity. There is Sir Nicholas Serota, who runs the Tate and who has given vocal support to cutting-edge art.
And there is the artist Damien Hirst, who set the scene by initially by-passing the dealer network and, with a few contemporaries just out of Goldsmiths College, mounted his own show, Frieze, in Docklands in 1988, and launched what became Brit Art.
Hirst is vital to the contemporary art market because it now looks as if he will become an established name in art history, not perhaps a Picasso or a Bacon but an artist whose work will be displayed in museums around the world and appear regularly at auction long into the future. His seminal works, usually dwelling on death and decay - the shark immortalised in formaldehyde; the cow and her calf sliced apart; the cabinets of pinned butterflies; plus the populist spot paintings that can be turned out in production line quantities by a team of assistants - have entered the public consciousness and will survive, at least as concepts.
More to the point, their commercial value seems secure. All Hirst's early monumental works were acquired by Saatchi, who still owns most of them.
There's no need to believe the prices quoted for some of his later acquisitions - the £1 million reportedly paid for Hymn, Hirst's giant replica of a child's toy, could well be exaggerated - but there is no hiding the fact that Hirst's prices at auction have been rising steadily, although he stumbled mightily last month at Sotheby's in New York when Bartholomew (pictured above) failed to sell despite a pre-sale estimate of $500,000 to $700,000.
In 1990, one of his spot paintings sold at Sotheby's for £95,000; 10 years later, the same auction house sold another from the series for £263,200.
And the spot paintings are not the most sought after works by Hirst. If Saatchi was tempted to sell at auction, the price of one of the landmark dissected animal works would easily top £500,000 and might climb much higher.
When Hirst and his contemporaries such as Rachel Whiteread, and to a lesser extent Tracey Emin, Sarah Lucas and the Chapman Brothers, looked like being a good investment, the contemporary art market was transformed.
For collectors acquire contemporary art partly because it stimulates them; partly because it can furnish their homes in a fashionably trendy manner; but more than in any other sector of the art market, for speculative reasons.
The work of young artists comes cheap and offers potential for substantial appreciation. When this was realised, a generation of collectors - who had often made their fortunes as entrepreneurs in property or new technology and were in tune with fresh and challenging art - started to buy the yBa's.
They were helped by an equally significant development: the entry of the auction houses, most notably Sotheby's and Christie's, as major players in the contemporary art world. Historically, the salerooms had not dealt in the primary market, but waited until an item had developed a financial track record before accepting it for re-sale. But now works can appear at auction within a few months of their creation. An auction establishes transparent price levels.
This has proved good business for the salerooms. Since 1997, turnover at Sotheby's and Christie's in this sector has trebled. In their main evening contemporary sales in London in June and February they might turn over more than £10 million in an hour's keen bidding. This is still small beer compared to New York, where the market has grown so rapidly that an auction can top $50 million, and for the first time last summer, Christie's earned more from contemporary art than from Impressionists. It has been one of the few bright areas in a tricky decade for the auction houses, and their vast publicity machines have ensured that the rising prices have caught the attention of prospective collectors.
Dealers have welcomed the involvement of the salerooms. In addition to ensuring that the promotional tide keeps flowing, they can buy and sell at auction, perhaps ensuring that the works of their own artists are supported in the marketplace while they sell off tired stock.
Dealers still have a vital role to play. They find new talent, usually by visiting the degree shows at the Royal College of Art, Goldsmiths, Chelsea and elsewhere. They might buy up the entire output of a likely star and help to finance a studio for them, pay a retainer and guarantee a show. At first, their fee will be high - 60%, perhaps 100% of the sale price. Over time, if the artist becomes an international name, the dealer may be forced to accept just 30% in commission, in case the artists switches to a competing gallery.
In return for their commission, the dealer organises the shows; prepares the catalogue; bullies the critics into reviewing it; and tries to interest collectors and museum curators in the artist. These days, a new generation of gallery owners must develop almost as much creative skill as their artists, but they are helped by the burgeoning interest of the gossip columnists in art, enabling young dealers to forge links with the equally frothy worlds of fashion, pop music and football - even David Beckham has acquired a work by Hirst.
The tyro dealers, from their galleries in London's East End or Deptford, are also helped by art fairs, whose organisers offer the most interesting new galleries free or subsidised space in an attempt to ginger up their displays and to tempt in buyers on small budgets.
Art fairs are crucial. Although London in the 1990s was gaining an international reputation as a place that produced interesting art, it lacked a major international fair to attract the movers and shakers in what amounts to an international business. Most of the leading London galleries - White Cube, Waddington, Lisson, Victoria Miro - sell their expensive art overseas, to American collectors, to museums, and more: a fair would ensure that key prospective clients visit London as well as Basle, Cologne and Chicago.
London's main modern art fair in Islington in January looked parochial in comparison, so this October Amanda Sharp and Matthew Slotover, creators of the art magazine frieze, put on the frieze Art Fair in Regent's Park.
They managed to persuade many of the leading overseas contemporary galleries to exhibit and helped subsidise visits from overseas collectors, curators and journalists. It was an instant success and gave the London contemporary art scene the shot in the arm that many thought it needed.
For since Hirst, who is now approaching 40, no equally promising young talent has emerged. Moreoever, conceptual art, art based around ideas and designed to stimulate thought rather than give visual pleasure, is starting to seem old hat. Videos, installation art, even photography, the hot genre until recently, are also losing favour, judging by prices paid at auction. There are signs of a swing back to a more gentle, less in-your-face art, art that you can live with, and this is giving a great boost to painting.
In 2002, Turner prizewinner Keith Tyson actually used paint, and Peter Doig, one of the most talked about artists, is also a painter. All the works at his most recent show at Victoria Miro were sold before it opened, forcing prospective buyers to compete at auction. A good painting by Doig can expect to realise £200,000 in the saleroom - compared with a £20,000 price-tag five years ago in the gallery.
For all the interest and controversy inspired by contemporary art, it's still a small market. Turnover in the UK at the cutting edge scarcely tops £100 million a year, and major collectors prepared to pay more than £30,000 for a work of art cannot exceed a few dozen. For the gallery owners, the key clients are the museums, desperate to buy an artist when he is young and cheap, in case he becomes important and too expensive. Saatchi may be able to make the career of an artist such as Jenny Saville, whom he bought wholesale - her monstrously large female nudes can now exceed £200,000 at auction - and to ruin an artist by offloading his holding onto the market, but there are few other British private buyers. The market is underpinned by foreigners living in London, such as Candida Gertler, the wife of German property dealer Zak Gertler.
An interest in contemporary art at the top level guarantees a busy and glamorous social life. There is the essential trip to Venice for the Biennale, followed by the leading fair in Basle; the courtship of the auction houses, always keen to entertain major buyers; and the parties. For frieze, Jay Jopling organised an extravagant bash at Sketch, London's most expensive restaurant; and Nick Serota, delighted that patrons of the fair gave the Tate works on show valued at more than £100,000, also hosted an exclusive event. There was also a party thrown by Monsoon, one of the sponsors of the fair.
Monsoon, like Deutsche Bank, Bloomberg, JP Morgan and other City firms, is a major corporate collector of contemporary art. Buying helps to suggest that it is an on-the-ball, up-to-the-minute organisation that likes to support young talent. Although companies can sell modern art as quickly as they acquire it - the major TI collection was disposed off suddenly last year - they still prefer the contemporary to any other kind of art and help keep dealers busy.
Brit Art has undoubtedly given the London and the UK art scene a boost and widened the public awareness of the contemporary. But although artists such as Hirst and Whiteread have also entered the international consciousness, British art is still outpriced by leading German artists, such as Richter and Struth, and is small beer compared to the Americans. The attention may have been on the young conceptualists, but Lucien Freud and David Hockney, the great British artists of today who command more than £1 million for a work, are of an older generation. Hockney is the only Brit in Artreview's top 10.
But buying cutting-edge contemporary art can be fun - if you have a large loft space in which to show what are often very big pieces. Trawling the summer shows of the major art schools or the specialist modern art fairs, or visiting one of the numerous open days organised with entrepreneurial zeal by the artists of London's East End - the biggest concentration of studios in Europe - can be both illuminating and profitable. You might come across the next Tracey Emin. In her graduate show at the Royal College, her work was priced at a few hundred pounds, but her neon signs now top £20,000 at auction.
Few trained artists make a living from their art and even fewer sell at auction. The golden rule is to buy only what you like: if you have a good eye, it might appreciate over time. Or wait until an artist has built up a reputation and hope that changes in taste do not condemn him or her too soon to art history's big dustbin of also-rans.
BRIT ART'S PRIME MOVERS
CHARLES SAATCHI - The dominant collector-dealer, whose support launched Brit Art. His taste has broadened to include painters and traditional artists. His public galley in County Hall is designed to rival the Tate Modern
SIR NICHOLAS SEROTA - Director of the Tate and austere guardian of British art, whose support for young conceptualists, especially through the Turner Prize, has increased their intellectual stature.
JAY JOPLING - Founder of White Cube. Hirst, Emin, photographer and video artist Sam Taylor-Wood (his wife) and the Chapman Brothers are among his stable of artists. A well-connected promoter of contemporary art.
VICTORIA MIRO - Her new Hackney gallery has quickly become a rival to Jopling's White Cube. Among her artists are the Turner Prize winner Chris Ofili and the much sought after Peter Doig.
NICHOLAS LOGSDAIL - His Lisson Gallery has been supportive of abstract sculptors, who have made a major impact in recent years, especially overseas. On his books are Tony Cragg, Anish Kapoor and Richard Wentworth.
LESLIE WADDINGTON - His gallery has the best collection of 20th-century art in London, but he is forging contemporary links. Along with the Picasso and Matisse back catalogues, he handles work by Gary Hume and Ian Davenport.
PAUL HEDGE - Runs the Hales Gallery in Deptford, one of the new generation of outlets designed to make Brit Art look old-fashioned. It has the currently hot Tomoko Takahashi on its books.
CHEYENNE WESTPHAL - Head of contemporary art at Sotheby's, which just pips Christie's in turnover. Anyone on a budget might find bargains at Sotheby's Olympia sales, where most lots have estimates at below £30,000.
MATTHEW COLLINGS - The leading writer and broadcaster on the contemporary art scene, whose detached views come as an antidote to the propaganda of the specialist dealers.
DAMIEN HIRST - Modern art's first tabloid star is also well placed to become the first, and probably the only, member of the Brit Art movement whose work will break the £1 million barrier at auction.
THE WORLD'S BEST-SELLING LIVING ARTISTS (sales since 1970)
1 JASPER JOHNS (US) 536 works totalling £92.8m
2 GERHARD RICHTER (Germany) 654 works totalling £80.9m
3 CY TWOMBLY (US) 412 works totalling £54.5m
4 ROBERT RAUSCHENBERG (US) 556 works totalling £36.5m
5 FERNANDO BOTERO (Colombia) 622 works totalling £35.7m
6 FRANK STELLA (US) 712 works totalling £35.6m
7 KAREL APPEL (Netherlands) 2,763 works totalling £34.3m
8 ANTONI TIAPIES (Spain) 794 works totalling £26.3m
9 DAVID HOCKNEY (UK) 1,005 works totalling £23.8m
10 GEORG BASELITZ (Germany) 405 works totalling £21.5m