People have drawn art since the time when they still lived in caves. Although our skills have advanced along with our societies (as well as changed and branched our into different styles), humanity's desire, and perhaps, need to create and enjoy art, never diminished. The market for artworks today is extremely profitable. According to Dr. Claire McAndrew, in 1990, the total number of sold artwork amounted to a sum of 27.8 billion USD. Before the last financial crisis, in 2007, this number had increased more than threefold, reaching a sum of 65.8 billion dollars. The most recent data in the report from 2012, shows that the crisis had little impact on the art market, brining it's revenues down to only 56 billion.
Through the years, we have heard how some contemporary artworks have sold for fantastic prices. A canvas painted completely blue, with a white line in the middle sold for 44 million USD. A banana (slightly rotten) taped to a wall sold for 120 000$. To the average citizen, such "works of art" seem to ordinary, too simple, or even silly, to be able to fetch such high prices. So why then, does this happen?
First of all, it is entirely possible that the artwork in question is, in fact, extremely rare, created by a famous, but not prolific artist. Such pieces would fetch a high price owing to their rarity. Some are the works of the great historical figures in art, and are more sought after because of it. More contemporary art exhibits can also sometimes be very large, very complex, or use very expensive materials, which would undoubtedly result in a higher price.
But in this essay, we exempt ourselves from these cases, as they are very straightforward. The goal of this essay is to reveal why simple and cheap (in material cost) art, created by young, relatively unknown artists, may sometimes sell for such high prices. Some would say that they are only an opportunity for an extravagant display of wealth, a way to display one's social standing. This is the so called luxury goods effect, where the demand for a certain good increases as the consumers' income grows. This is unlike basic goods like bread or public transports, which are exchanged for other goods as income grows. The high prices of art, according to these economists, can entirely be explained by observing the average art auction. In a way, the bidding and outbidding amongst each other, is a sport, where the one with the most money wins both the prize, and the respect (and perhaps envy) of his social peers.
Other economists postulate that this is not the entire story. For them, these high prices are not only the result of an excess of wealth and a desire to show it, but also the product of the wealthy persons' desire to appear as a cultured, educated and "elevated" individual. These people, by purchasing artworks which are considered silly or plain by most people, wish to show they posses a refined taste for art and culture in general. That they posses knowledge and affinities which are on a higher level than that of the common man.
These two reasons together, probably explain much of these seeming market anomalies. And yet, I believe that there are cases where such surprising sales are conducted because of even baser desires than vanity. Namely, I believe there are cases where the sale of artworks is conducted solely, or largely in order to evade taxes or make an easy profit with a huge margin. How would such a thing happen?
Let us look at the first scenario. A young, hopeful artist, largely unknown by his peers, creates his first artwork. At the exposition, he is approached by a businessman, who makes him an offer he can't refuse: the businessman will buy his artwork for 1 million USD, but on the condition that the artist later, secretly hands him back 900 000 dollars. This is an arrangement where both sides benefit. The businessman has freed 900 000$ of his income from taxes. The artist would sell for a higher price than he expected (even after handing back 90% of the price), but would also receive the fame and recognition that would come from such a fantastic sale. This, in turn, would also increase his chances of future sales.
The second scenario is a bit more complex, and involves only a specific group of people, namely art dealers with connections amoung the wealthy elite. These dealers choose a young and unknown artist, and make a certain arrangement with there clients, according to which his artworks would be purchased consistently at relatively high, but not preposterous sums. After many of his artworks are sold in such a manner, the artist will have created a reputation for himself, a name which costs money. When that happens, clients that bought the artists first artworks can now resell them for much higher prices. In other words, these art dealers artificially build up certain artists careers, in order to capitalize on their fame later.
Of course, the aim of this study isn't to imply that no work of art could possibly costs such prices, nor that there is no work which is good enough or beautiful enough to receive such a reward from the market. Nor is it's purpose to claim that the value of modern art is derived solely from snobbish outbidding, tax evasion or profiteering. The point of this essay is to offer possible, rational explanations of the exorbitant prices of some simple artworks made by unknown artists. So that, when we next hear that a black box drawn on a white canvas had sold for a million dollars, we would be less surprised, and more inclined to ponder the underlying motives and economic incentives which may have skewed the value of that particular artwork.