The Economics of Taste

As America's fourth-largest investment bank was going bust, Damien Hirst was selling US$125 million worth of art.

Beautiful in my bank account: Artist Damien Hirst's auction broke art world records in the teeth of the global financial downturn.

It seems scarcely believable now, so much has the economic landscape changed, but just 16 days ago, as America's fourth-largest investment bank was going bust, Damien Hirst was selling US$125 million (Dh495m) worth of paintings and sculptures at Sotheby's. People bid for - and bought - more than 200 works, including a preserved zebra called The Incredible Journey, a snip at $2.2m; a coloured triptych called Heaven Can Wait, nearly double its estimate of $1m at $1.7m; and the star lot, The Golden Calf, a white bull calf pickled in formaldehyde with hoofs and horns made of 18-carat gold wearing a gold disc on his head. The work was knocked down for $18.6m.

Mr Hirst called his sale "Beautiful Inside My Head Forever", but he probably should have subtitled it "Cash in My Pocket Just in Time". He is suitably modest about his calling. "Rembrandt, Velasquez, Goya, I think they were all thinking about the commercial aspects of art. I believe I'm only doing what any of these artists would be doing if they were alive," he says. These men, while talented with a paintbrush, were mere dabblers in comparison.

Few would have dared to pull off what he has done, in the process becoming the fastest-earning artist in the history of the world. Some of the buyers were rumoured to be banks and hedge funds. Even if that proves to be untrue, it is likely that some of the buyers either no longer have a job, or are sitting on assets that are worth a fraction of what they were at the beginning of September. It might be thought that there is no reliable guide to whether or not owning a Hirst will be a good thing in 50 years or so.

But for those who believe that the past can tell us something about the future, there is a little known work called The Economics of Taste by Gerald Reitlinger. It was published in 1961 in three volumes, can still be found in tattered second-hand bookshops in Britain and is a thorough review of the prices that artwork achieved from 1760 to 1960. The books are fabulously dense and written in a prose more reminiscent of the age of enlightenment than the age of the Beatles. Reitlinger traces the prices that artwork reached over the ages.

"By 1650, the Raphaels of Charles I were sold for prices up to £2,000 (Dh12,990), his Correggios for £1,000 each, his commissioned works from living artists for anything from £40 to £200 according to the reputation of the artist and the magnitude of the work," he writes. A colossal sum in those times. For him, the ideal artist to invest in is one who produced a sufficient quantity of work - someone like Vermeer, though desirable, did not knock out enough paintings, and they are virtually all in museums - and did not suffer from questions about authenticity, such as Rembrandt. Nobody wants to buy an Old Master and discover that it was painted by a young fraud.

Reitlinger's main conclusion is that "Whatever the period, the status of the living painter plays a very large part in determining the price of art". For example, in the second part of the 19th century the British public went crazy for the work of artists such as John Millais, Lawrence Alma-Tadema and Edward Burne-Jones's Chant d'amour. Once these artists had gone off to the great studio in the sky, the value of their work plummeted. Alma-Tadema's The Finding of Moses sold for £5,250 in 1904, an enormous sum that would probably have afforded the owner a tasty Mayfair townhome. When his descendants sold it in 1935, they recouped a fraction of the outlay, making just £861. Twenty-five years later it went for even less, a mere £252. Likewise Chant d'amour, bought for a whopping £3,307 in 1886, made just £620 in 1930.

People who were hoping perhaps that buying art might be a hedge against falling stock and bond markets may be disappointed. The closest parallel to today is perhaps what happened in the 1920s. As well as a stockmarket bubble on Wall Street, there was also a craze for collecting etchings. Prices went up and up. And when the markets crashed, so did the price that people were prepared to pay for etchings.

It took nearly 50 years for etchings to recover their saleroom value, while the loss in real terms was immense. If history were to be repeated, most of today's artists would be dead, and a good portion of the purchasers too. Hirst may probably choose to have himself pickled with a golden crown on his head. He would deserve it. History may yet judge him not so much on artistic merit, but in his ability to read the markets. As he is reputed to have said: "Everything goes for a lot of money. Until it doesn't."