Chapter 12

Art and collectibles

“I would rather my family’s wealth was tied up in a Titian than in a bank share,” one art consultant told the author. An expectation that old-master paintings will hold value from generation to generation supports the case for investing in art. This contrasts with investments in individual companies where success can be followed by decline or collapse. But the art market, like the stockmarket, is diverse and the reasons for expecting a Titian to remain highly valued need to be distinguished from what Michael Moses, formerly a professor at New York University’s Stern School of Business, has called the “growth stock” arguments in favour of investing in contemporary art.

William Baumol, emeritus professor of economics at Princeton University, was sceptical about investing in art in a 1986 article “Unnatural value or art as a floating crap game”. He argued that art prices “float more or less aimlessly and their unpredictable oscillations are apt to be exacerbated by the activities of those who treat such art objects as ‘investments’“. He contrasted this with the process of supply and demand, which causes prices of manufactured goods to move towards an equilibrium. Baumol illustrated his argument with some transactions data for paintings showing on average a return, after inflation, of close to zero. The data he used is now regarded as unrepresentative, but his arguments are not so easily dismissed because i....