In the art world, paintings that may appear absolutely pointless to some may be worth millions to others. Yet when taking a deeper glance at the art markets, we can see many examples of economics at work. Many people have invested in art over the years; however, investing in art does not generate the same flow of money compared to other forms of investment. There are several reasons why people (especially those that belong to the wealthier groups of society) continue to buy art, regardless of the talent of the buyer. First of all, “as people become wealthier, their demand for high-end art increases” (Coate 2017). Thus, art is a positive or normal good. Secondly, art is a way to show off to others that you are wealthy and cultured. Along with the prestige of owning renowned art pieces, there is a bit of cultural and social value of artistic works that leads many to buy art. Not only do artworks function as an ego boost for those who own them, but they can also be a great way to earn money if someone else offers to buy them at a much higher price than what was initially paid for it. In a way, this would make trading in the art market more akin to speculating than investing since people buy or sell art based on what they think their value will be in the future (“The Economics of the Art Market,” 2020). Additionally, the price of a famous piece of fine art is constantly increasing because of the limited supply in circulation. For instance, a Rembrandt could cost much more than something an artist living today could produce simply because no more original Rembrandts can be reproduced. Despite the limited supply, demand for fine art is high, and people are willing to pay enormous amounts of money to get a hold of these pieces and later profit off them.
References
Coate, B. (2017). “The Economics of Ridiculously Expensive Art.” https://theconversation.com/the-economics-of-ridiculously-expensive-art-87668.
Economics Explained. (2020). “The Economics of the Art Market: Why This Painting Isn’t worth $450 Million.” https://www.youtube.com/watch?v=V5sOuET8UWA.