Understanding Value in the Art Market
- By Anders Petterson, ArtTactic

No other time in the relatively short-history of the Indian art market has the question of what determines long-term financial value of an artist, been more relevant.

After the recent burst of the speculative bubble that started to build up around 2003 and 2004, the Indian art market has undergone a significant value correction. Recent auctions in 2008 and 2009 show the extent to which the value of the Indian art market was affected by exuberance in the boom years and the ensuing panic when the market turned. Both phenomena are closely linked to the (mis)conception of value in the art market.

So where does value of art come from? On a simple level, art provides satisfaction, or utility as economists would say, and that gives it its value. However, satisfaction is not universal and will apply differently to different people.  But we can divide the satisfaction into three main categories which all have an impact on the way we perceive and attribute value.

These categories are:

Aesthetic satisfaction – simply, the pleasure you derive from viewing and owning the art work (either because of its beauty, rarity and/ or importance

Positional satisfaction – this is linked to art as a ‘status’ good; in other words it helps to increase the social status or social rank of the owner because of the importance of the art in his or her possession

Financial satisfaction – it is linked to the monetary or financial value appreciation of art

It wouldn’t come as a big surprise to many of our readers that the element of financial satisfaction in the Indian art market became a dominant factor in determining and driving value during the boom years. The value of art became largely detached from the intrinsic qualities of it as an object and the merits of its maker (artist), and instead went down the slippery path of auction price discovery, an often self-fulfilling journey, fraught with market manipulation and greed.

Now, both aesthetic and positional satisfaction is linked to the importance of an artist and the artist’s work. In this regard, we have to closer examine the notion of ‘validation’. Validation is the complex process whereby the works of an artist are written about by influential art critics, selected by curators for museum exhibitions and important international biennales, nominated for art prizes and scholarships, and bought by prestigious collections (both public and private). If this validation process is successful, it is likely that the works will be given the status of ‘museum quality’.

Curators, academics, art critics, art professors, artists, collectors, galleries and dealers are all critical elements of the art market eco-system, and it is the consensus opinion among these players that form the basis of how we understand the importance and quality of an artist and his work, and hence the basis for the long-term value of art.

The problem we saw in India and most other art markets was the sheer power of the auction houses and the dealers, which far outweighed those of curators, art historians, academics and critics. The question of artistic importance was largely left to the forces of demand and supply. The downturn is likely to change this imbalance.

No doubt the art market correction will be an expensive lesson for some, but for others it’s an opportunity to engage with a saner and down-to-earth art market.  The current situation will weed out the weaker players, but the survivors will be the ones to watch as the market rebounds.