How much for that painting?

Is the economic value of art based on airy fairy numbers that collectors and galleries pluck from the air?

Let us evaluate from a simple starting point – where it all begins, in the artist’s studio.
An unknown artist (let us call him Andy) has been painting for years. He had set up a small street-side stall with his paintings displayed. Some of them are deemed ‘interesting’ by a walker-by. Due to the subjectivity of art in current times, it would be irrelevant whether the art is “good” or not as price does not have a linear correlation to “good” or “beauty” (and beauty was never ever clearly defined anyway but let us leave that for another discussion). Mr. Walkerby buys them, at USD80 each.

Andy priced each piece based on:
1. Material cost. (e.g. USD10)
2. The number of hours he spent (5hours) and how many burgers he would like to eat in a day (2 burgers and drinks), in order to continue painting (e.g.USD15)
3. His rent, utilities, overheads. (e.g.USD5)
4. How many more hours it will take for him to draw and sell another painting (1+2+3) – this is a sustainability factor. Some call it, profit margin. (e.g.USD40)

So the piece he is selling would come up to USD80. And Andy can survive another day to work, and possibly save.

If Andy wanted to save more, buy more and/or better materials, spend more time on the paintings, the price of his paintings goes up.

Mr.Walkerby then puts the paintings up for sale at his little shop- where he pays overheads for. He sells the paintings at USD160 each to cover costs, and his No.4.

Mr. Retail who buys from Mr. Walkerby then keeps 2 pieces, and puts the rest up for sale, also at a margin.

If Andy never knows about the “Retail” price of his painting, he will continue selling his pieces at USD80, with increases each year depending on inflation.

If Andy realizes that his paintings are sold at a margin on top of margins, he may decide that he wants to charge what the “Retail” price is charging (maybe he needs a new sweater).

Suppose scenario 2 happens – three things could happen:
A. Mr. Walkerby will not buy them anymore as they are considered expensive.
B. Mr. Walkerby buys more, as he thinks that there is still demand.
C. Mr. Retail buys directly from Andy.

If A. happens, Andy has overestimated his popularity.

If B. happens, the demand will depend on whether Mr. Retail thinks there is still demand at the higher price.

If C. happens, Andy gains. Mr. Retail will need to work hard to sell the art which will be at a higher price.

All artists need a Mr. Walkerby and Mr. Retail to become “established” – a subjective term coined by those who needed to justify their no.4.

What is clear from this illustration is that once art goes through the hands of a trader (which we call galleries), expect higher prices. Also expect rave reviews, art shows, marketing and publicity, champagne launches.

The cycle goes on and on. Artists that make the news are the B and C scenario types. The thing is, the more expensive the piece, you will note that the galleries are also in expensive locations, paying expensive employees to run expensive shows and talks. Then everybody wants a piece of it once a famous gallery or critique declares the piece “marvelous”. And the bidding starts.

That same painting, when put on the street and gone unnoticed by Mr. Walkerby, could still have been worth USD80.

And we haven’t even gone into the topic of auctioneers, collectors, agencies, lessors yet! That is for another article.

Here is also an interesting write up that we can learn a thing or two from – a blunt account from the business themselves about a print for sale – http://www.artbusiness.com/appsellart.html

More articles on the value of art, and our experiences, soon.

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