Fine Art As Investment


It is not enough just to know the causes of inflation, and what the government could do to stop it. Such knowledge may be satisfying, but it doesn't help pay the bills when the dollar loses 20 percent of its value in a year. Thus, one of REASON's functions is to help our readers protect themselves from the misguided government policies we help to expose. As part of this effort, in our January issue Robert Crim explained the basics of numismatic coin investment. In a similar vein, art expert David Marcum here provides a basic introduction to the world of fine art as a vehicle for investment.

The age of the noble and quasi-noble collector of fine art has passed. Remnants of this tradition still glimmer faintly when such notables as J. Paul Getty or Norton Simon appear on the auction scene, but in the last 20 years, there has developed a rapidly expanding art market which appeals to the tastes and, more importantly, to the pocketbooks of the less princely endowed. Now it is not the Baron who bids on paintings or transacts private sales, but groups, art syndicates, galleries, and individuals of the middle and upper classes of America and Europe. Aesthetic awareness has become a definite and important aspect of the life style of the affluent.

But, there is another dimension to fine art that separates it from the general necessities of existence such as transportation, clothing, food, and shelter. Fine art has, over the last 20 years, proven itself to be an excellent investment. In general, art has been an appreciating asset, keeping its value well ahead of the mounting inflationary plague. In a Barron's (Dec. 31, 1973) article entitled "Care to See My Etchings?", Franz Pick wrote, "In the backwash of global monetary destruction, the 'new order' of value resulted from public auctions of most of these objects (fine art), shifted etchings to the top of the list, with an unexpected advance of at least 400% above 1972 prices of which about $23,000.00 was the highest."

In the last year or so, recognition of the potential of using fine art as an investment medium has made itself evident in articles of a semi-technical and popular nature. This is an excellent indication that art is showing solid investment potential, that is realizable by the common investing public and is gaining wide acceptance. To cite one example, the May 23, 1973 issue of Financial World contained an article entitled "Art as Investment Outspaces Stocks" by Lee Berton. Berton briefly outlined some of the then-current conditions of the art market and offered a few tips on buying art at auction. The most significant feature of Berton's article was a summary of the Times-Sotheby Art Index, a table of relative value increases of certain categories of fine art over a 19 year period starting in 1950. Also in the summary was the value increase for stocks. While Dow Jones Industrial Stocks rose three-fold from 1950 to 1969, certain types of art had increased at a far more dramatic rate. The average price of old master prints had increased 37 times in the same time span, modern paintings had increased 29 times, and Chinese porcelain 24½ times. Less impressive, but still substantial, were English porcelain (up 4 times), French furniture (up 5 times), modern books (up 9 times), and English silver (up 8 times). English silver, however, was down during the writing of his article due to overspeculation in the 1960's, but even in the wake of this market decline the overall value from 1950 was up 8 times.


It is important to understand the evolution of the art market to its present day investment oriented structure. The history of the art market may be conveniently divided into two separate periods. Before 1900, art collecting was undertaken by the aristocracy and the benefits derived from collecting were mainly social prestige and aesthetic pleasures. Investment and art were fairly separate concepts. At the turn of the century, there came a marked change in the art market. This change was due to the fact that wealthy Americans began to collect art avidly. For the first time, nonaristocrats, people without family heritage collected very expensive art.

The acquisition of fine art by Americans at the turn of the century created a competitive market for high quality European works. Certain pieces were in particular demand and were bought and sold several times in the space of 30 years. For instance, Rembrandt's Aristotle Contemplating the Bust of Homer was bought and sold three times by Lord Duveen, the foremost art dealer of the early 20th century. The result of any demand market in which the supply is low, is that prices climb, and an investment potential is established. Such was the case with the American art market at the turn of the century.

The popularity of buying art and antiques strengthened the public auction house and the specialized art gallery. Both institutions had existed previously, but their prominence increased during this era, for they helped collectors other than the very wealthy via a larger distribution of art objects to the general public.

Specialized galleries have helped the collector by devoting their resources to one particular type, style, or historical period—contemporary American graphic work, XVI century French furniture, or Oriental porcelain of dynastic age, for instance. Because of their focus, these galleries have sophisticated communication systems which keep them informed about prices and the whereabouts of pieces in their field. A generalized gallery will be less likely to have this kind of detailed information on all fields they carry.

Not only have auction houses and specialized galleries expanded since the 1950's, but during the same period there has been a boom in art market activity and accelerating increase in prices to the point that art, now, has the unique position in 1975 to be one of the favored alternatives to many traditional forms of investment. The art market has evolved from the frivolous collecting of bygone aristocracy to the serious collecting of today's businesspeople.


The major centers of art market activity are London, New York, Paris, and Zurich. The reasons why these particular cities are most important is because they are responsible for the solving or partial solving of the problems of taxation, export-import problems such as restrictive National Treasure Laws, and governmental import appraisals for tax purposes which generally place unrealistically high values on art. The English, and to a lesser extent, the American Governments, interfere to a smaller degree with the exporting of art than any other government.

Investors and collectors should be wary, however, of other countries' laws when buying art abroad. For instance, France's national museums have a pre-emptive right of purchase at any public auction. This means that any museum may pay the price of the last bid for any merchandise, despite the fact that the individual bidder was willing and able to pay the last bid.

Other countries in which the export or purchase of art becomes difficult are Italy, Turkey, and the Central and South American countries.

For example, Italy's laws on export of fine art are extremely complex and frustrating. Any work of art exported must have an export license granted by a superintendent of a given geographical area. These licenses may become extremely expensive and expand to 30 percent of the market value of the work. The superintendent may even completely refuse to grant a license.

The tremendous increase in the market for antiquities of Pre-Columbian and bronze age Anatolian (Turkish) art has caused tightened controls and policing of archaeological sights in these areas. Turkey is one of the richest areas for antiquarian art and the amount of ancient art and jewelry smuggled out of the country by art dealers has been phenomenal. Huge penalties may be placed on those caught with smuggled or allegedly smuggled goods. The exporting of some smuggled artifacts to the U.S. has even caused slight diplomatic rifts between the two countries over the past 10 years.

A full scale inquiry into a country's laws on buying, selling, exporting, importing and taxation should be undertaken before one starts operating in those areas.


It is impossible for one individual to grasp the whole of fine art collecting, so initial specialization is valuable. One may effectively branch out to other areas in time, after careful study. Knowledge of your area of investment is imperative. Heedlessness, impetuous buying, and trying to obtain any "good deal" are not the keys to the accumulation of a fine collection for investment, personal satisfaction, or both. Reading a general art history or more specialized text is an excellent idea for anyone unfamiliar with the diversity and boundless investment alternatives in the fine arts. It would also enable the neophyte investor to get a better idea of where his interests lie.

In the actual purchase of art, investors would do well to follow these suggestions:

[1] Shop around—The area in which one lives, depending on its affluence, may have several art outlets. Become familiar with these; investigate their reputations and their authentication procedures. Compare prices to the degree possible.

[2] Inspect carefully—Keep an eye open for paintings that have been touched up or overcleaned, repaired furniture and sculpture, reproductions being sold as originals, stolen items, hazy pedigrees, and chipped, cracked or broken objets d'art. Examine all merchandise carefully. Ask questions and watch the proprietor's manner. A knowledgeable and reputable dealer knows about his own stock.

[3] Go to auctions—If your area has art auctions, visit them several times before buying. Learn how they operate and see what type of competition you will have to deal with. When bidding, keep a detached manner. Extravagant prices are often paid in the heat of competition. This is known as "auction fever." Get a feeling for prices in your chosen area of preference.

[4] Ask questions—Ask dealers, auction house representatives, and most importantly, other collectors. These will be a valuable source of information.

One of the traps which beset the investor is the constant temptation to get too attached to a work of art. Art can be immensely satisfying in a way wholly alien to economics. Always keep in mind that when you invest, the resale may bring profit, which can then be used to purchase a finer work. Investment in fine art has an ongoing emphasis just as investment in the stock or commodities market does.

Finally, and perhaps the most important, there is always that interest in the mediocre and the novel which seems to be omnipresent in our society. Novelty and mediocrity have little aesthetic merit and have monetary value only in times of great economic boom or current fad. The final factor in the value of a work of art is ultimately based on quality. For that reason, investors should be wary of buying items of a faddish nature. For instance, the market for Pre-Columbian low quality ceramics, contemporary American painters of abstract persuasion, or early American bric-a-brac (i.e., glass insulators, old soda pop bottles, and inexpensive silver plate), are just a few of the examples of the types of items that would drastically decrease in value in a generally depressed art market. One may buy a Rauschenberg abstract painting, and for a similar price, a rare and fine example of a Dürer woodcut. In a depressed art market the quality of the Dürer would always make it a desirable work, and, although markets would be thinner, price loss would be minimized. I have reservations about the value of the Rauschenberg. In buying contemporary work for future profits a great element of ultimate financial gain has an element of luck involved. Will the artist rise in popularity? Will he stay popular or is his work a passing fad? In the beginning, it is better to buy traditionally recognized work for those above questions may be easily answered in the negative. The more speculative venture into contemporary art should only be made after careful study and a lengthy involvement with buying and selling.


There are several important pitfalls to be avoided when investing in fine art. Firstly, the market for fine art is often a thin one, and becomes more so the higher the quality and price of an object. This problem was more important 30 years ago when there were fewer collectors, but the situation still remains. The best solution is to establish contacts with fine art brokers, reputable auction houses, or good galleries. Keep up correspondence with collectors in your field as they may know of outlets.

Secondly, low income investing has its problems. Generally, the lower price ranges in fine art are offering more and more aesthetically worthless articles than the higher priced ranges. Sensitivity to quality in any price range is an important faculty to foster and can only be developed by study and familiarization within your chosen area of interest. For instance, the 1960's produced an unprecedented rage for impressionist works. A fine painting by Monet may easily cost a half of a million dollars today; however, some of the lesser known impressionist painters' works may be purchased for under $50,000.00. The major impressionist artists are therefore very expensive and exclusive so there has justifiably been more of an interest in minor and pre-impressionist artists by collectors searching for lower income investments. Henri Fantin-Latour, a French artist of high technical ability, a man whose art spans academic and impressionistic technique, known for flower still lifes (i.e. Flowers and Fruit, 1865, The Louvre), is still virtually unknown to most collectors. His graphic work is still relatively inexpensive ($100-$500) and there is good reason to believe he may be an important low income investment as the prices for the impressionists have made them unattainable for the bulk of collectors.

The consideration of changing fashion is also of concern in investing in fine art. Fashionability in the collecting of fine art has its roots deep in the 19th century societies of Europe. Present day American society manifests this tradition with fluctuations in the fashionability of owning certain artists almost on a seasonal basis. Prices for art generally mirror what is fashionable and what is not fashionable.

One can cite many examples of the prices for art that have fallen or risen due to fashion, fad, or speculation. Fine French tapestries enjoyed a high premium at the turn of the century as did Victorian portraiture. Both fell in price partially because of the depression, and because they simply went out of vogue.

Not only may works fall out of fashion, but also may rise out of relative obscurity and show large price gains. For example, the two Chinese cloisonné snuff bottles illustrated could have been purchased in 1960-1962 for approximately $20.00 each. Being of good quality, benefiting both from the rising fashionability in snuff box collecting and the growing American interest in cloisonné, they now have an estimated market value of $250.00 each.


Since prices can fluctuate so readily, the alternative the investor should choose is to buy quality in all price ranges as these items tend to hold their price for the following reasons: when an economy is depressed, money is more dearly held on to, and buyers become more selective. Buying of the avant garde or the second rate is minimalized. In a bullish economy, quality is bought because there are always people who are true connoisseurs and set their aspirations above the common and mundane, plus having the financial ability to realize their ambitions. Perhaps it is for the above reasons that the prints of Pieter Brueghel, the genius Flemish artist, have on the average advanced some 50 times in value from their base prices in 1950.

Fashion changes are frustrating to the novice investor, but fakes, forgeries, and misattributions are the dangerous pitfalls which any collector may fall into. Over the past 20 years faked paintings, prints, sculpture, and objets d'art have become a permanent, ever growing, and ever more difficult to detect phenomenon of the art market proper. One of the largest fake markets at present is in the area of antiquities which includes Near Eastern and Pre-Columbian art. Every year American tourists bring home "Mayan" figurines from Central America by the droves, losing anywhere from a few hundred to thousands of dollars per figurine. Following the abovementioned fakes the most dangerous areas are the late, middle, and early 20th century watercolors, drawings, and paintings. It is difficult to understand how so many alleged Matisse, Picasso, and Chagall watercolors and drawings (just to mention a few) exchange hands for thousands of dollars without so much as a question about authenticity from the buyer, nor any offer of authenticity from the vendor.

I ran into a classic example of an attempted fraudulent sale of a painting in Chicago, Illinois. I came upon a gallery showing a 19th century Venetian or North Italian school piece painting. It had some merit and upon inquiring about the price I was told that the painting was by the great master Correggio. A Correggio of that size (3′ x 4′) in as fine a condition as that, would sell for several hundred thousand dollars and would probably be handled by the finest auction houses in the world. Being of museum quality, publicity would precede the sale and a brochure would have been published describing its pedigree. The gallery owner said that, of course, they would take only a fraction of the real market value and I could place my bid with her in absolute confidence.

Every collector and investor wishes to find a lost Raphael for $50.00 in a junk shop. But finds of that type are very rare. It also takes a well trained eye and much study before one can discern a piece of art amidst acres of useless rubbish in a junk shop.

The question remains, what can a collector do about such a situation? Firstly, by following the guidelines under effective investing and collecting one can hedge against this problem. Secondly, reliable dealers are important in that they are trained professionals with integrity. Thirdly, when beginning to collect shy away from artists most often faked until a greater knowledge of their style is accumulated, and even then only buy one with a fine pedigree. Finally, tend to choose items which display a virtuoso technique. The higher the level of craftsmanship, the less the possibility of it being successfully faked.


In general, quality auction houses provide the finest method of either buying or selling fine art. Auction houses have what is known as pre-auction shows in which the lots are shown to the public for scrutiny before the sale. Auctions allow anyone to bid, which helps one remain anonymous, if so desired. This is important for several obvious reasons. It should be pointed out that there has been a growth in strictly cash transactions, and some dealers have abandoned store fronts, performing their services on a very personalized basis. Oftentimes they have but a few high quality pieces and work out of hotel suites, thus keeping their overhead down.

The U.S. seems to have come to an age of growing aesthetic awareness and because of the condition of the Western economies over the last 10 years, art has indeed, become a major alternative to many traditional investments. I would, however, emphasize a few words of caution. The condition of the American economy in early 1975 points toward a probable redirection in art market activity. Liquidity is the major concern of all investors. The question of what will be the more dangerous, either future inflation or future recession, weighs heavily in light of the concern about relative liquidity. Of course the general outlines for buying art put forth in this article are applicable to both economic situations; however, if a severe recession should ensue in 1975, the thinness of markets could curtail profit margins greatly in art investments.

There are, however, two possible, positive aspects to art investments during a period of severe recession. Dealers will stock only finer pieces of art. Again, when money is dear, there is little frivolous buying by either collectors or dealers. Secondly, over-inflated prices will settle and current fad art items will drop out of the market, thus making long range investment possibilities more defineable and manageable. Always buy carefully, with knowledge and settle for only the finest in any price category.

In conclusion, I would like to quote Marc Rosen, assistant vice-president of Park-Bernet Galleries, "A Dürer, Rembrandt, or Pieter Brueghel is worth more to a lot of people I know than a certificate in IBM or Xerox. You can't hang a stock certificate in your living room."

P. David Marcum has a degree in art history and has carried out independent academic research on the historical behavior of the art markets. He has an undergraduate minor in philosophy with an emphasis on aesthetics, and has a background in studio art (painting, drawing, and lithography). At present, he is actively brokering fine art, and is preparing a series of lectures and informational pamphlets on various aspects of fine art investment and allied topics.

• Lee Berton, "Art as an Investment Outspaces Stocks," Financial World, May 23, 1973.
• David L. Goodrich, Art Fakes in America, Viking Press, Inc., New York, 1973.
• Geraldine Keen, Money and Art, Jarrold & Sons Ltd., Norwich, Great Britain, 1971.
• Karl E. Meyer, The Plundered Past, H. Wolff, New York, 1973.
• Franz Pick, "Care to See My Etchings?", Barron's, December 31, 1973.
• Gerald Reitlinger, The Economics of Taste; The Rise and Fall of the Picture Market, Holt, Rinehart, and Winston, New York, 1961.
• Gerald Reitlinger, The Economics of Taste; The Rise and Fall of the Objets d'Art Market, Holt, Rinehart, and Winston, New York, 1963.
• Richard H. Rush, Antiques as an Investment, Bonanza Books, New York, 1968.
• Richard H. Rush, Art as an Investment, Bonanza Books, New York, 1961.