News-Antique.com - Oct 18,2010 - Portraits as Art Market Currency Pt. 6 – artmarketblog.com
As the final post in this series I want to summarise my findings, but before I do I want to reiterate the reason that I wrote this series of posts on Portraits as Art Market Currency. The catalyst for this series of posts was, and still is, the continuing saga relating to the supposed instability of some of the world’s most significant economies. Economists and journalists have been making predictions for quite some time regarding the supposedly impending crisis that range from “the extent of the crisis is being grossly exaggerated” to “it is only a matter of time before we experience a catastrophic global financial crisis”. Even though opinions relating to the extent of the crisis vary greatly, it seems that a majority of experts believe that there is at least a significant chance that there will be a series of negative events relating to the economic status of some countries in the near future. Although it is unlikely that a complete global financial meltdown will take place, hypothesising on the effects that such an event would have on value of the art market reveals extremely interesting information regarding the way fine art is valued, and the way we assign value to art objects. This information is extremely useful for investors in fine art as it highlights the importance of having a strategy, and provides indications of how that strategy should be structured.
The reason I made the comparison between portraits and currency is because the way we assign value to currency can tell us a lot about the way we assign value to fine art. For several decades there has been heated debate surrounding the way currency is valued – a debate that stems from the global change to a fiat money system from a Gold Standard. To recap , the Gold Standard “was a commitment by participating countries to fix the prices of their domestic currencies in terms of a specified amount of gold” (US Library of Economics and Liberty). The benefit of the gold standard is that currency essentially had intrinsic value because it was basically able to be exchanged for a certain amount of gold. According to gold expert Paul Nathan in an article on Kitco.com “The intrinsic theory of value holds that worth or value is contained within an object. It holds that economic goods possess value inherently, innately, despite the market, despite supply and demand, i.e., in spite of men’s values, choices, and actions”. The Fiat money system, on the other hand, is currency that a government has declared to be legal tender, despite the fact that it has no intrinsic value and is not backed by reserves. Historically, most currencies were based on physical commodities such as gold or silver, but fiat money is based solely on faith. Because fiat money is not linked to physical reserves, it risks becoming worthless due to hyperinflation. If people lose faith in a nation’s paper currency,