Does the value of a painting depend on the whims of the well-heeled aesthete or the shifting moods of the markets? Rhymer Rigby puts current art prices in a historical frame.
The market for art is governed by an uneasy, perhaps unique, alliance - by broad economic forces on the one hand and the vagaries of taste on the other. Its peculiarities are starkly illustrated by the relative performance of two paintings - Titian's Venus and Adonis and Reynolds' The Tragic Muse - sold for similar prices in the late 18th century. By the 1920s the Titian had risen in value by 400%, the Reynolds by 4,400%.
Such a comparison is only made possible by the major auction houses, thanks to whom records of sale prices stretch back several hundred years. Using these figures, William Goetzmann, an economic historian at Yale University, has devised an index based on the auction prices of over 3,000 paintings sold between 1715 and 1986. Combining his research with inflation indices and data from the Art Sales Index, it is possible to produce a graph charting real art prices for almost 300 years (see above).
It opens with a jolt in the early 18th century, after which prices recovered and remained broadly stable until the 1830s. Here they dipped briefly before maintaining an almost unbroken 30-year rise. Such strength is surprising: though underlying economic growth was strong, overall consumer prices were in decline. The market remained at an historically high level until 1914, buoyed by both a healthy economy and fin de siecle extravagance. The onset of war prompted a sharp decline, followed by a modest recovery and then further falls brought by deflation, depression and, later, the second world war.
Post-war growth has been the most robust of any time in the period covered. Here, interestingly, Goetzmann points to a correlation between art prices and the behaviour of the stock market, undermining the notion that a painting's collectability renders it immune to market forces. The boom ended in the early 1970s at around the time of the first oil shock, where any gains in value were more than offset by inflation.
During the 1980s the market reached its most bullish, with investors seemingly falling over each other to set record sale prices. Its excess is best captured by the price of a trio of Van Goghs, Sunflowers, Irises, and Portrait of Dr Gachet, the last of which (sold at Christies in New York for $75 million) holds the auction record for any work of art. Inevitably, the bubble burst and the early 1990s saw an equally spectacular collapse. Though prices have recently stabilised, the mood is still sober. Those art buyers who overreached themselves in the late 1980s, like their home-owning counterparts, are likely to be contending with negative equity for some time to come.