What is ‘the art world’? The philosopher Arthur Danto has suggested that the art world ‘stands in relation to the real world in something like the relationship in which the City of God stands to the Earthly City’.1 In this formulation the art world assumes a quality of unreality, of detachment from everyday life, its objects somehow resisting conventional economic assignments of value and utility. ‘Certain objects, like certain individuals, enjoy a double citizenship,’ Danto writes, citing Andy Warhol’s Brillo Boxes as a case in point by noting that ‘the Brillo box of the art world may be just the Brillo box of the real one, separated and united by the is of identification.’
The ‘is of identification’ is itself a product of the codes and conventions created, understood and shared by the complex network of interdependent, social and institutional relationships of which ‘the art world’ is comprised. However, instead of conceiving of the art world as a single, unified city or planet, we might consider it a composite of different celestial bodies like the solar system. The dictionary offers a range of definitions of ‘the world’, from ‘the earth as a planet, especially including its inhabitants’, to ‘a complex united whole regarded as resembling the universe’, and even ‘any star or planet, especially one that might be inhabited’.2
Such cosmic notions are helpful for an understanding of the diverse creative activities, private and professional institutions, commercial structures, social codes, symbolic practices, and yes, occasionally unethical and illegal behaviours, that make up what is commonly termed ‘the art world’.3 We might extend the planetary metaphor even further by visualising the art world as a kind of orrery. Invented by Enlightenment scientists, orreries were designed to represent the orbital movement of each planet relative to the sun. Like the orrery, the art market is also a product of the eighteenth-century Enlightenment, when the social role of the artist gradually completed its transition from that of the artisan. This was also the period when the patronage/commissioning system that had previously dominated the art market steadily began to give way to the commercial activities of agents and dealers.4 The various planets of an eighteenth-century orrery were set in motion by a clockwork mechanism, whereas the ‘planetary bodies’ forming our notional art-world orrery – auctioneers, dealers, museums, curators, collectors, speculators, bankers, critics – are driven by the interaction of two seemingly antithetical forces: aesthetics and economics.5 While they have sometimes been considered hostile to each other, it is the creative tension generated by these two discrete but overlapping ‘logics’ that results in the myriad outputs of ‘the art world’ and the creative industries that enrich our lives.
For some art buyers, the aesthetic qualities of a work of art will always take primacy over the economic benefits of ownership, while for those with a more investment-focused motivation the work’s economic profile will be of principal concern.6 It would be wrong, however, to assume that those of the former persuasion care nothing for the economic aspect of the art they purchase, as would be the assumption that all investment-orientated buyers are blind to art’s aesthetic qualities. It is the overlapping boundary between these categories that makes the art world so challenging and sociologically intriguing.
One of the critical outputs generated by the interlocking systems of aesthetics and economics is the assignment of value and price to objects in the market.
The art market is broadly separated into two sectors known as the primary and secondary markets. The ‘primary market’ concerns objects newly created by the artist or craftsperson that have never been previously transacted. In the art market this has traditionally been the sector controlled principally by art dealers. Dealers (or gallerists as they are usually termed in the North American market) seek to identify and represent artists whose work they feel has aesthetic value and thus a modicum of commercial potential. To this primary level of aesthetic selection dealers add a range of promotional and commercial services, including exhibiting the work in a gallery or at art fairs (and more recently via a range of digital platforms). The aim of these strategies is to disseminate knowledge of the artist and the work to collectors, critics, curators, academics and other interested professionals – the occupants, as it were, of the ‘field of cultural production’ – in order to build belief in, and prestige around, the artist and the work.7 As well as lending moral support, encouragement and friendship, some dealers occasionally add a further financial commitment to their artists by offering regular monthly stipends or more occasional forms of monetary assistance.8 Critical to this approach, however, is the cultivation by primary market dealers of a disinterested approach to the economic dimension of what they do. Through a disavowal of the profit-orientated motive, dealers seek to foreground their prestigious, symbolic function within the dense social matrix of art-world individuals and institutions – which includes other dealers, auction houses, critics, collectors, museums, galleries, the education system, the media, and so on.
While dealers play an important role in promoting otherwise unknown or unrecognised artists to a wider public, this process comes with a certain amount of financial risk. It can take time for a young or emerging artist to develop his or her creative ‘voice’, requiring artist and dealer to build a meaningful, long-term relationship based on trust, mutual respect and shared aspirations. In order to offset the financial outlay that such arrangements entail, many primary market dealers engage with the ‘secondary market’, that is to say by buying and selling works that have been transacted on one or more previous occasions. One of the principal arenas for the secondary market is the auction houses.
In the European historical tradition, auction houses developed as agents for the seller, taking a small commission from the vendor on the hammer price. In the mid-1970s, however, as the market expanded and competition intensified, the bigger UK auction houses of Christie’s and Sotheby’s took the radical step of extending their commission structure to include a ‘buyer’s premium’.9 Under this arrangement (fiercely opposed by the UK trade at the time of its introduction in May 1975), the buyer of a lot is required to pay a commission to the auction house, levied as a percentage of the hammer price. Auctioneers were now benefiting financially from both parties in the transaction. This is still viewed by many as a conflict of interest that obscures the boundary between the roles of agent and principal.
The traditional function of the auction houses has changed in other ways as well. In 2008, Sotheby’s took the unprecedented step of offering at auction a consignment of works by the British artist Damien Hirst, in which every object came fresh from the artist’s studio, none having previously been transacted. Not only was this widely viewed as the auction houses moving into the primary market territory previously governed by dealers; it also represented a shift in the economic status of the artist. Living artists traditionally rely on their dealer as their main route to market, but Hirst chose to bypass his two main UK and American dealers and instead consigned directly to the open market via the auction block.
Auction business is currently undergoing a radical transformation as the market globalises, competition increases and ever greater levels of wealth are generated. These factors have had the effect of bringing the auction houses into closer alignment with banks, wealth managers, hedge funds, and other investment vehicles. The bigger auction houses might now be seen as discreet brokerages in which blue-chip art assets are deployed as exotic tools in ever more opaque financial transactions.
Mentions of ‘the art market’ in the mainstream media invariably refer to the rarefied zone of activity in which, almost every year, eight- and even nine-figure sums change hands for rare works, sometimes at public auction, but increasingly by private treaties forged behind closed doors away from journalistic scrutiny. In the last three or four years, reportedly, a painting by Cézanne has sold for $250 million; a work by Gauguin for $300 million; a Picasso for $179 million; and two sculptures by Giacometti together totalling $205 million.10 In other words, just shy of a billion dollars has been forked out by three or four separate individuals for just five works of art. Tellingly, the two highest priced of these sales were conducted privately and the exact sums never officially confirmed, suggesting that the prices paid might have been even higher. What effect such part-private/part-public transactions have on the creation of value within the broader market and how the market is perceived by outsiders, including the criminal classes, is yet to be properly explored.
All of the transactions mentioned above were paid by collectors enriched by the profits from either liquid petroleum (Qatar) or hedge funds (New York). This wealth factor explains the recent growth of interest in art collecting not only among Middle Eastern collectors and North American investment managers, but also among the newly enriched in Russia, China and, increasingly, South America. It is only a matter of time before the African and Indian art markets begin to engage at the top level as their economies accelerate and the wealthiest in those continents seek fashionable ways to communicate their material success. Inevitably, perhaps, as ever greater wealth is invested in art, so the art object comes to be seen as a kind of currency, a ‘store of value’, symbolising the market’s economic infrastructure.
The historical record confirms that wherever wealth has been generated, art markets, or variants of them, have flourished. This was observable in Renaissance Florence in the fifteenth century; in sixteenth-century Antwerp; in Amsterdam in the mid-seventeenth century; in London in the eighteenth century; in Paris in the nineteenth century; and in New York in the post-war period. Following the end of Soviet-style communism in 1989 and the subsequent spread of market capitalism concomitant with globalisation, wealth generation in the world’s emerging economies reached unprecedented levels. The World Wealth Report informs us that 920,000 new millionaires were created globally in 2014, as High Net Worth Individuals (HNWIs) ‘grew in both number and wealth to 14.6 million and US$56.4 trillion, respectively’.11
As the number of wealthy individuals increases in the developing world, so art markets are growing accordingly.12 This trend has been most marked in the Asian economies, with the Chinese art market in particular seeing exponential expansion over the last decade.13 However, the widely reported cases of malfeasance in the Chinese market – including bribery, money laundering, the abuse of the auction process and the endemic culture of faking and unauthorised replication of works of art – prompt us to bring a level of scepticism to the rosy picture presented by some economists and research analysts. Until standards in professional practice improve, the Chinese art market will be impeded by such irregularities, which falsify price, increase risk and discourage participation.14
For better or for worse, the art market is subject to a range of characteristics and conditions that set it apart from more conventional markets and cultural realms. These might be summarised as:
Because many art transactions are conducted beneath a veil of secrecy, it is nigh on impossible to make anything approaching an accurate quantitative estimate of the market’s true size. Confidentiality has been a characteristic of art commerce since the Italian Renaissance and can be ascribed to the unique nature of the art object as a thing subject to the vagaries both of economics and aesthetic judgment. From that peculiar conjunction is born the market price, the disclosure of which is often hindered by the imperatives of private investment. In passing on their enormous wealth, the early members of the Medici family of Florentine bankers and art patrons were sensitive to how their sumptuary activities might be perceived by the broader populace and advised their heirs to avoid litigation and not to attract attention. A full five hundred years later, a similar fear of publicity troubled the New York department store owner and art collector Benjamin Altman, who expressed concern that customers might make a connection between his high-end art collecting and the price of goods in his retail stores.15
Today, much of the art trade remains highly confidential, indeed secretive, particularly in the higher-priced sectors of the market where art consultants and advisers act as agents on behalf of the world’s wealthiest families and individuals, ensuring them high levels of privacy and anonymity. Nor is it only private collectors who run shy of publicity. In the past decade alone the market has witnessed an increase in the transactions conducted by the bigger auction houses in the form of private treaty sales rather than by public auction. These developments add a further level of obscurity to an already opaque market, hindering the efficient collecting of price data and militating against an accurate overview of market size.
Another, not unrelated issue is the dual role now undertaken by the major multinational auction houses in acting as both agent and principal in a transaction. This happens when the auction house offers a guaranteed price to a vendor in order to secure a consignment. If the work fails to sell on the appointed day, the vendor is still paid the guaranteed sum and the auction house becomes the de facto owner of the work. When first introduced in 1956, guarantees were underwritten by the auction house.16 More recently that risk has been transferred to third parties incentivised by an attractive share of the ‘upside’ – the differential between the guaranteed price and the final hammer price (if it exceeds the guarantee). This has led to allegations of a potential conflict of interest, with some commentators seeing it as a form of insider trading given that the terms of the guarantee are kept confidential between the third-party guarantor and the auctioneer. While such practices are not technically illegal, they are nevertheless widely viewed as unethical and contribute to a perception that as the art auction market moves ever closer to the financial markets so its business practices require tighter regulation.
Looking more closely at the art world today it is hard to avoid the conclusion that markets for art have entered a new era. Globalisation, unprecedented wealth generation, the internet and related social networking technologies, geopolitical upheavals, the increasing power of the banking profession: these and other factors have helped bring about a structural change in how art is traded, how art is collected, how art is understood and perceived. Inevitably, perhaps, these changes have also attracted the attention of a criminal tendency opportunistically attuned to the informalities that constitute both the market’s strengths and weaknesses. Most of the professional inhabitants of the art world would argue that its opacity, its informal social networks, relative lack of regulation, disequilibrium of information, and confidentiality are essential to its survival and to its apparent success in withstanding the vicissitudes of the global recession. Interestingly, but hardly surprisingly, the calls for stricter regulation of the art market tend to come from external commentators rather than from professional art market insiders. One would hardly expect the New York hedge fund manager Daniel Loeb, who has fought tough battles to become a powerful shareholder in Sotheby’s, to argue for tighter regulation.17 His interest in Sotheby’s is driven by a conviction that the company could be more profitable for its shareholders and that it can only be so if it more efficiently exploits the art market’s existing trading conditions rather than acquiescing over tighter controls. Loeb and his colleagues want the art market to preserve its difference, not move closer to the conventionally regulated markets.18
As the economist Alvin E. Roth reminds us, ‘Markets and marketplaces come in many forms, some of which don’t conform to conventional notions of markets, and some in which money may play little or no role.’19 There is no doubting the increasingly prominent role played by money in the art market, yet at every level it is forced to take account of other factors: taste; fashion; authenticity; provenance (an object’s origin and ownership history); art historical importance; the status and reputation of the artist, and so on. These are not fixed, stable categories, but values under constant negotiation and realignment. Moreover, as prices rise, so also do the risks as criminal networks seek to exploit the market’s many inherent vulnerabilities.
To what extent, it seems reasonable to ask, is the art world a compliant victim when it comes to art crime? Where are its vulnerabilities and what measures could be taken to counter the threats to its integrity? Is it really credible to argue that the measures required to prevent crime in a business sector such as the art market also represent a threat to that sector’s very existence?
Since antiquity, art has been threatened by subversive interventions, ranging from plain criminality such as art theft and iconoclasm to more sophisticated counter-cultural activities such as art forgery, the faking of provenance certificates, and so forth, which require some awareness of the art world’s visual traditions and codes of behaviour. To the now familiar inventory of misdemeanours must be added those evolving from the worlds of business and finance, such as tax evasion, money laundering, and insider trading, all of which appear to be proliferating. A recent Art Business conference in London posed the question of whether money laundering in the art market is a bigger problem today than it was ten years ago. One expert response was that it does indeed appear to be a bigger problem, but perhaps because it is now more frequently brought to the attention of the relevant authorities.20
To what extent might the new levels of art investment witnessed in recent years be indirectly encouraging art-related crimes? Despite the absence of reliable data to confirm it, there is a widespread sense in the art world that instances of art theft, art forgery, and the use of art for money laundering have increased over recent decades.21 Are these activities in any way linked to price rises at the top of the market? Or are they perhaps a consequence of the art market’s relative lack of regulation compared with conventional financial markets? It is easy to see the intuitive logic in the assumption, although there is no empirical evidence supporting it. It seems reasonable to assume, however, that although the European and North American art markets are regulated by a range of generic consumer laws and statutes, the often casual informality of their commercial operations and the widely publicised rise in prices for so-called ‘blue-chip’ art works have conspired to encourage the criminal fraternity to view the art world as a relatively porous realm susceptible to exploitation. That porosity extends on a more concrete level to national and regional museums. Too many museums remain poorly secured and thus vulnerable to theft and various forms of iconoclasm, to say nothing of their poor due diligence procedures. All too often museums find themselves the owners of fakes, forgeries and looted artefacts. The recent case of a looted figure of the Hindu god Shiva bought by the National Gallery of Australia from the discredited New York art dealer Subhash Kapoor is just one of any number of recorded cases in which credulous museums have conspicuously failed to conduct proper checks prior to purchase.22
Art forgery is an ancient human activity, as a recent analysis by Thierry Lenain has shown.23 Similarly, art theft has a long history which, in the twentieth century, it may reasonably be argued, has followed a broadly parallel trajectory to the rise of the art market. These are serious issues, to be sure, which bring high levels of risk and uncertainty to what has always been a complex and precarious realm of cultural and commercial life. However, we ought not to focus our attention exclusively on what might be termed ‘conventional’ forms of art crime.
To the now familiar and long-established categories of criminal behaviour must be added more recent and potentially more dangerous threats to the reputation and stability of the art world, and to culture in general. The geopolitical unrest ravaging the Middle East and the ethnic and religious tensions causing social upheavals in the developing world are presenting fresh challenges to the global cultural order. The seemingly unstoppable advance of Daesh in Iraq and Syria is but one instance of how political and ethnic unrest is sending vast quantities of looted cultural heritage onto the world market. On the social and political level the Middle East conflict has also rendered homeless the most vulnerable and impoverished people in that region, bringing about migrations on a near biblical scale. Against this background it is hardly surprising that many among the desperate and dispossessed are turning to looting and the illicit trade in artefacts as a way to carve out a meagre subsistence for themselves and their families. It is a folly to view the art world as an entirely innocent party in the burgeoning trade that results; it is nothing less than a pivotal component in the global food chain in looted art, and yet it could effect a positive change were the economic incentives to continue acquiring not so compelling. One might argue that the ‘payoff externalities’ associated with discreet and unrecorded transactions and the lack of proper sanctions against those found to have transgressed conspire to encourage undesirable choices, in turn fostering a uniform social behaviour that militates against a more ethical trade.24
So far this chapter has discussed some of the characteristics that distinguish works of art from conventional commodities and that make the trade in art such an idiosyncratic commercial realm. Over centuries these characteristics have shaped the market mechanisms through which art has been bought and sold. Above all it is the unique nature of the art object that sets it apart, which constitutes its appeal on an aesthetic and emotional level, but which also brings with it a broad range of risks and attendant obligations. One of these is related to provenance, from the French word provenir, meaning to come forth. The word first entered usage in 1785 and has come to be understood within the art world as the history of ownership of an object.25 However it can also be considered more broadly as a record of an object’s prior ‘social life’, of its wider cultural background and the network of social relations to which it lends meaning and from which the work itself derives economic or symbolic significance.26
Unlike other highly priced assets such as houses and motorcars, art objects do not generally come to market with a complete ownership history or log book. Supporting documentation – receipts, bills of sale, invoices, archival documents and historical photographs, etc. – are frequently missing. As a result, buyers are often unaware of the origin of what they are buying, even of who is selling it, or to whom it belonged at earlier stages of its existence. Researching the provenance of a work of art can not only provide information about its prior ownership but also potentially contribute to a clearer understanding of its art historical importance. Was the object made for a particular patron or location, for a specific private, social, symbolic, ceremonial or ritual function?
Provenance can also inform us of the darker side of an object’s prior ‘social life’. Is the work what it purports to be? Have its physical characteristics been added to, or otherwise altered or interfered with? Was it ever copied, stolen or looted? Establishing this kind of information with any thoroughness is no small task, and the success or failure of provenance research will always depend on the nature of the object in question. An object’s provenance affects its market profile; and thus a work with a complete, or near complete, ownership history, together with supporting documentary evidence, will often be of greater value than if those documents were missing. The lamentable corollary to this is, of course, that supporting provenance documents can also be faked, thereby requiring further scrutiny and caution on the part of market participants. Some of the most notorious art forgery cases of recent years have involved the faking of supporting provenance documentation.27
Given the extent of Nazi looting from Jewish families during the Second World War and the sensitivity around Holocaust-era assets, museums are under constant pressure to undertake more rigorous research into the provenance of their collections. Suffice to say that Nazi-looted art remains one of the most controversial and hotly debated topics in the art world.
Given the potential pitfalls alluded to above, most responsible art market professionals are cautious about transacting in high-value objects with little or no provenance information. However, if partial or incomplete provenance were sufficient to dissuade buyers and sellers from transacting, there would be no art market. Needless to say, the further one moves up the price scale, so the need for more thorough provenance increases accordingly. The process undertaken by buyers and sellers in order to assure themselves of an object’s legitimate provenance is often referred to as ‘due diligence’. It is not always sufficient to complete the various steps involved in the due diligence process; one must also be seen to have undertaken them and preferably have some form of evidence to prove it. So what constitutes due diligence in the art world? In a nutshell, it is about the questions that should be asked and the kind of research that needs to be conducted prior to transacting in an object. The more methodically these procedures are undertaken, the more transparent, legitimate and thus secure will be the resulting transaction. The kind of due diligence questions a buyer might reasonably ask a seller include:
There are also due diligence questions that buyers should ask themselves, or approach other relevant bodies to answer. These include:
These questions are by no means exhaustive and nor do they always necessarily guarantee a safe transaction. In one recent case, a highly regarded specialist dealer undertook a series of careful and exhaustive due diligence checks on a painting by Norman Rockwell prior to buying it, only to have her resulting good title later challenged by an opportunistic third party. She won the case, but at considerable emotional and financial cost to herself.29 In the case referred to above in which a statue of Shiva was acquired by the National Gallery of Australia, the purchase was supported by a ‘due diligence’ certificate issued by an art recovery company confirming that the object in question was not on their stolen database. It later transpired that, unbeknownst to the cultural heritage authorities in its country of origin, the object had been looted relatively recently from an ancient temple and thus would not necessarily have been registered as stolen. Certificates issued by stolen object databases in support of cultural heritage objects should therefore be treated with caution.
Such caveats notwithstanding, due diligence checks, if methodically pursued, add an important layer of confidence and may also enhance an object’s commercial value.
The art market has undergone seismic changes in recent decades, which have presented market participants with a wealth of unexpected commercial opportunities but also further layers of risk and volatility. These changes might be summarised as: globalisation, digitisation and financialisation. Each has had an impact in its own right, but they have also coalesced at times to deliver new challenges to traditional ways of conducting art business. One of these concerns the concept of originality and authenticity.
As globalisation has brought new market economies into the art world, so it has also exposed how different cultural traditions can have an impact on the art market’s commercial infrastructure.30 Prior to 1989, structured art markets were broadly considered a western commercial phenomenon, evolving slowly over several hundred years in response to a diverse range of political, cultural, religious and economic factors. By contrast, the art markets emerging today in Asia, Russia, the Middle East and Latin America are barely two decades old. Although some have sought to produce local versions of the traditional business structures and institutions underpinning Western art markets – such as auction houses, art galleries, museums, art investment funds, art advisers and art fairs – their approaches to concepts of authenticity and originality have been quite different. So too is the ethical apparatus upon which such approaches to some extent depend.
In the Western tradition, ideas of authenticity and originality emerged in the seventeenth and eighteenth centuries in conjunction with the development of a hierarchical concept of the ‘fine arts’ promulgated by the newly established art academies. A by-product of this was the quasi-scientific discipline of connoisseurship whose practitioners sought to establish a set of rules for identifying quality and developing a taste for works of art. Henceforward, a process of critical discernment replaced the wonder and delight associated with the pre-Enlightenment Wunderkammer, or cabinet of curiosities.31 As science advanced in the twentieth century, so various kinds of forensic analysis have been added to the processes of authentication and attribution that previously fell within the purview of connoisseurship. More recently, as prices have risen to new levels, some connoisseurs who would previously have pronounced on the authorship and authenticity of a work of art – which might have admitted it into the artist’s catalogue raisonné, for example – now reserve their scholarly opinions, fearing litigation from disgruntled collectors whose works might be rejected. Into this vacuum has stepped the developing discipline of ‘technical art history’, the leading practitioners of which combine academic art historical knowledge with expertise in forensic, scientific and photographic processes in the investigation of a work’s material characteristics.
To complicate matters further, since at least the 1960s a good deal of contemporary art has not actually been made by the artist whose name it carries. Instead it is produced by artisan assistants and specialist fabricators working to the artist’s precise specifications. In some cases these outsourced processes are governed by strict non-disclosure agreements and confidentiality clauses designed to efface the contribution of the anonymous artisan maker of the work, thereby protecting the ‘brand’ of the artist who conceived the original idea and who claims authorship and the lion’s share of the financial reward. The implications of this accelerating trend on questions of authenticity and ‘originality’ when fakes and forgeries occur are yet to be fully tested.
This chapter has sought to summarise the complex network of informal relationships of which the art world is comprised and to suggest some of the ways in which this presents risks for market participants. As digital technology makes ever deeper inroads into private, public and commercial life, so the global landscape will undergo further transformations. The advent of the internet allowed the digitisation of auction price data, broadened access to archival information, and improved provenance research, thereby bringing greater transparency to the market. However, with every advance towards transparency, the art market produces an equivalent counter-strike towards opacity. Already, some of the new online auction websites preserve the anonymity of buyers and sellers and even refuse to disclose prices, militating against quantitative analysis of the market and arguably increasing price volatility. Similarly, while the development of digital imaging technologies has enabled auction houses and dealers to streamline their business processes and accelerate transactions, so the ‘jpeg culture’ on which a good deal of the market has come to depend invites practices of replication and appropriation. This brings with it associated ethical challenges relating to the moral rights of the artist, making the market ever more reliant on the vagaries of copyright and intellectual property law.
Like its eighteenth-century clockwork forerunner, the art world ‘orrery’ is a convoluted mechanism whose planetary bodies simultaneously attract and repel each other as they respond to the solar forces of economic logic.
Tom Flynn is a London-based art historian and art market consultant. He is director of the MA course in Art Appraisal (Professional Practice) at Kingston University and teaches MA courses on the International Art Market at Richmond, the American International University in London, and the Paris-based Institut des Études Supérieures des Arts. He has published widely on museums, cultural heritage and contemporary sculpture and is a member of the International Association of Art Critics. He is the author of The A–Z of the International Art Market (forthcoming from Bloomsbury Press, London 2016).