Would you pay $450million for a work of Art?

Salvator Mundi being auctioned at Christie’s.

If I got $450million to spend, purchasing art would not be on the top of the list. But in 2017, at Christie's Auction, Salvator Mundi by Leonardo Da Vinci was sold $450,312,500. WOW! When I saw this unfolding, a barrage of questions started to stagger my head. What makes art worth up to $450million? Why would someone pay that much for an artwork? What is the nature of art economics?

Art shapes our society. It shares ideas, expresses emotions, and develops feelings. Without music, art, theatre, and more, life would be boring and meaningless. For example, when we are lonely and sullen, we flock towards sadder tunes, reminding us that we are not alone, that other people share the same feeling as us. The value that art creates is intangible, meaning it is neither physical nor measurable. The subjective nature of art makes it unique to anyone. The only reason I would add artworks in my dorm is to brighten up a dull, bland room with qualities that I like, making a room that I can call mine. 

My first Doughnut in Blender (an open-source graphic design software).

Well, if art is subjective, what gives it value? What makes an artwork worth $450million? A value of art can be determined by the following characteristics: The artist's exhibition history, education history, public collections, critical acknowledgment, and the originality and quality of the artwork. Hence, my painting with only white paint on canvas is worthless, but White Painting (Three Panels) by Robert Rauschenberg can be displayed in the San Francisco Museum of Modern Art. The White Painting derives its value from the artist's idea to showcase purity: something untouched by human hands. The difference between mine and his is that he actually did it, and I haven't lifted a paintbrush in two years.

Robert Rauschenberg, White Painting [three panel], 1951

However, the story of the Salvator Mundi is quite strange. In 2005, the New Orleans Auction Gallery presented a painting which depicted Christ in Renaissance-era robes, and it read the description, "After Leonardo da Vinci. Christ Salvator Mundi. Oil on cradled panel." A Picker (a dealer who buys paintings from minor auction houses or antique sales and sells those to wealthy clients for a hefty profit) named Alexander Parish and his friend Robert Simon acquired the painting for only $1000. During restoration, Robert Simon was researching the painting's origin, only to find that the painting they bought for $1000, was the original Salvator Mundi by Da Vinci. Later, it was sold to a Russian Oligarch, Dmitry Rybolovlev, for $127.5million. However, the deal was muddy and problematic, which was creating problems for the Russian Oligarch. In 2017, he put up the painting for auction at Christie's, eventually selling it for $450million. The price of the painting has sky-rocketed over the years. Once a painting from a minor auction house in New Orleans ended up being sold for almost half-a-million dollars. This pattern of pricing is a clear example of the Greater Fool Theory. The theory can be summarized in one sentence. If I am a fool to buy this expensive item, there is always a Greater Fool to whom I can sell it. Artworks have no intrinsic value. They do not provide any return on investments. If I spend $450million on the artwork, I am forgoing the opportunity to invest, retire quickly, or spend it on other goods. 

This sounds like a pathetic investment, right? Not if you are rich and have shady businesses in the background. For example, I now have a Salvator Mundi. I paid $450million in cash to hide all the shady investments I was involved in, and the auction house and the seller is happy with the cash because they earned $450million. So, I currently have a $450million asset sitting in my warehouse. (It is like a huge gold nugget, but classy.) However, it is the end of the fiscal year, and since I am a rich man, I pay "a lot" in taxes. To the tax system, they see my artwork as an asset worth $450million. Now, what I can do with this shiny, classy, oil painting is I can donate it to an Art Museum as a charity, hence giving away $450million. This lets me get charitable benefits from the tax system and now, without spending a dime, I have saved more than $100million in taxes. But wait, the fun part is that if I am bored with this painting, I can sell this painting for more than $450million because there is always a greater fool who will buy the painting. So this is a win for me because I have successfully hidden my shady money, a win for the seller and the auction houses because they earned hefty profits, a win for the museum because they get a renowned artwork for free, a win for the government because I "donated," and another win for me because I can earn more out of it. But there is no such thing as a free lunch in the world of economics. So, someone is paying for all this kerfuffle. The unknown payers are the people that cannot afford $450million: the common man. The deductions in the tax system mean that there is less money left for health services, education, unemployed, or pensioners. In short, collectible artworks are a way of laundering money. 

Isn’t it easy money?

The Art Economy doesn't only revolve around artworks. Watches are known to be expensive. It has been a movie trope for decades that an overly cocky villain will show off his bougie Rolex watch or a Richard Mille watch to express their super-rich and evil ego. And it definitely works since the perceived value of these watches are bound to be higher than its original price. If I own one of these watches, I am walking with $1 in my pocket and $3million on my wrist. I am a walking millionaire. I can readily rebuild my failing financial standing with a twist in my watch buckle and giving it to the authorities. What makes art a better and sneakier purchase than other forms of investment are its relative size but a high value (capital density), hard to track, easy to transport, and have wide recognition. A sixteen-by-eighteen-inch canvas can be worth around $200million without other people knowing or seeing.

The world is not filled with passionate people who buy art because they experience profound emotions or see something suave. It is filled with rich people who have smart accountants that can hide money creatively. I am not trying to paint a bad image of art here. I do love and appreciate art. It has had a profound effect on my life, and I am sure anyone else could say the same. It is necessary to keep our society tightly knit and balanced, but the world is not as happy-go-lucky as it might seem.