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Why are paintings being bought and sold at astronomical prices?

BingMag.com Why are paintings being bought and sold at astronomical prices?

In 2017, at Christie's Auction House in New York, a mysterious purchase was made after announcing a $ 450 million bid (which for the time being) It was a record), it won the painting you see.

BingMag.com Why are paintings being bought and sold at astronomical prices?

but this is a painting It is not normal. This is a painting by Salvador Mundi. A work by the legendary Leonardo da Vinci. The news of Salvador Mundi's purchase for $ 450 million caused a huge shock wave in the entire art market. It should be noted that for decades these shockwaves have been a reliable sign of the economic bubbles in the art market. $ 450 million is so much money that it can be used on 1% of the general stock Motors has invested in the property of a small suburban neighborhood or small island in the South Pacific, with $ 50 million left over to spend it manually.

Anything, each of these investments brings a lot of profit, and with their profit, you can retire safely and have a comfortable and prosperous life for the rest of your life.

But a painting is nothing but a painting, It does not matter what the art dealer tells you. This sign above your fireplace may look nice, but it can never make a profit. Because the only way to make money in the art market is to find someone who is willing to offer a higher amount than the amount you paid to buy the painting. Now what could be his motivation for doing so? I do not know. Maybe an emotional reason?

Basically, buying and selling artwork is a prime example of The Greater Fool Theory. According to this theory, sooner or later a fool (sorry, a buyer) will be found to buy your artwork, hoping to sell it to another buyer at an even higher price. Buying and selling artwork is like a hot potato game for billionaires.

Basically, buying artwork is not an investment, but a speculation. Because the value of artwork generally depends on the judgment of the person looking at it. There are currently few people in the world who can afford to buy Salvador Mundi, the most expensive painting in history, so its market is very limited for potential buyers. A small group can be bought and sold, how could it be sold at such a high price, for what - if we want to be honest - are the works of the pen stained with paint on the canvas? What drives the market for expensive paintings? How can art be used to move money creatively and circumvent tax laws? Most importantly, why do some people spend so much money buying a painting when there are so many assets (like rental homes and profitable stocks) that investing in them is guaranteed to generate more money?

  • Aydin Aghdashloo set a record of 12 billion Tomans in the 13th auction in Tehran

Art Bazaar: A market like other markets?

Investments are usually viewed in an absolutist way. You are either making money or you are losing money. There is no gray area in the middle. This rule applies to both companies and the art market. Despite the thought-provoking headlines about the selling price of works of art, this market is not monopolized by the very wealthy.

In fact, the market for works of art has a wide range. For example, on the Internet you can find works of art produced by freelancers and novice artists for a small fee. Art galleries, on the other hand, have more prestigious works of art that are naturally more expensive.

Like everything else in the world, the price of a painting ultimately follows the law of "supply and demand." All other products have to follow it, whether they like it or not. The simplest use of artwork is to add a little color and glaze to a depressing apartment. That is why people willingly buy such works. If the price of these works of art is higher than the cost of making them and brings profit to the person or institution who made them, we are on the side of a standard trade.

BingMag.com Why are paintings being bought and sold at astronomical prices?

Some people may claim that home decor is not" real art ", but we are not here to define real art. We want to look at these works from the point of view of economists, not art critics. To illustrate how the art market works, the simple paintings and decorations you see in apartments are good enough examples. It is not limited only by the cost of producing these goods, but another limiting factor is added to the equation, and that is the limited number of goods that are physically present.

Assuming that the original effect of Picasso is more beautiful than the $ 20 painting sold at IKEA, so it can be concluded that people will want a genuine Picasso painting.

BingMag.com Why are paintings being bought and sold at astronomical prices?

Given that there are only a few hundred original Picasso paintings in the world, these works will belong to those who have the money to buy them. These people can only buy these works from people who have already bought them. This system is the basis of the Collectors Item.

Collectibles are one of the strangest things in the world of economics, especially in relation to the standard applications of the supply and demand system. A collectible object is basically any object that can no longer be produced, has a limited number, and is exciting to own because it carries some kind of material or spiritual advantage. A rare work of art has all of these characteristics.

One of the reasons people jokingly say that an artist's work is valued when he or she is dead is the limited number of paintings and the impossibility of producing new paintings. Other new paintings by Diego Velzquez, Francisco Goya and Rembrandt are no longer produced, so if you are looking for paintings by these artists, you should look for the few paintings that remain on the planet.

The reason why these paintings reach such a special place in the art world is related to a concept called Opportunity Cost. Suppose a wealthy family owns one of Picasso's original paintings and someone offers $ 5 million to buy it, but they decide not to sell it.

According to economic logic, if another work by If Picasso is available for sale for $ 5 million, the family will buy it. In fact, this is not the case. They may not have $ 5 million in cash; Maybe they don't want another Picasso work, or maybe they have no economic justification for spending so much money on a painting.

But according to cost-theory, if you are not willing to sell sex for $ 5 million That means you are spending more than $ 5 million to make it your own. This means that if you did not have that item, you would be willing to spend $ 5 million to buy it.

In both cases, you are spending over $ 5 million to make that Picasso painting your own. That statement sounds logical, doesn't it? That is why this theory is one of the basic rules of economics.

But no, this statement is wrong! People are stupid and their emotions play an important role in such decisions. When we talk about collectibles, each of which has its own perceived value - that is, their value depends on the customer's perception and feeling of their value - the impact of emotions is felt at its most intense.

Whether you are making an economic decision (investing, buying a house, selling a car, etc.), opportunity cost is an important factor to consider. If the price set for the item is the price at which you are willing to buy or sell the item, it can be concluded that this price is fair.

We return to the painting of Salvador Mondi. It can be argued that because there is only one specimen of this kind in the world and there is one person in the world who can pay such a high amount to buy it, the transaction is welded without words and accounts.

BingMag.com Why are paintings being bought and sold at astronomical prices?

So, instead of asking why this painting is so expensive, the better question is to ask what made a person so rich. Who can or is willing to buy it at that price.

As mentioned earlier, people value the sex they own more than the sex they want to buy. Since all collectibles are sexually owned by one person, anyone who intends to purchase them must purchase them from someone who values their property psychologically and emotionally. Therefore, the price set for it must overcome this emotional value as well.

For this reason, given that people expect the price of anything to rise at the same time as its perceptual value, they are more inclined to Look at things whose perceptual value is high in the eyes of long-term capital. It is in this context that the Asset Bubbe is created, that is, a situation in which the price of something astronomical suddenly rises and is bought and sold for a short time above its real value.

Asset is something of economic value. And a person, company, or country controls or owns it, expecting it to make a profit in the future. This profit can take various forms, such as:

  • Cash Flow
  • Capital Appreciation
  • Production capacity ( Productive Potential)

On this account, is investing in works of art rational?

History tells us that yes, but potential investors should know and be aware that The value of a work of art is based on people's perception of its future financial value, not the tangible and understandable profits - such as cash flow and production capacity - that the ownership of such assets brings.

It should also be noted That such risks are not limited to the art world. In the luxury and expensive commodity market around the world - such as watches, high-end cars and even alcoholic beverages - risk-taking plays an important role.

Class, they say, speculation about its future price will play an important role in buying and selling.

Now let's look at how art can be effective.

Art And taxes; The link in the heavens

All right, dear billionaire, now that you understand the concept of Speculative Investment, it's time to see how you can use art to your advantage. Go.

Go and find a reputable art dealer who has a long history of promoting new and contemporary artists or raising the value of dead artists. Which one depends on what kind of painting you prefer to cook on the wall of your room. Decorate Queen Victoria you bought in London. We assume you spent $ 20 million. That sounds like a lot to a collection of paintings, but instead you are given 20 paintings, each worth an average of $ 1 million.

Now you have permission to sell the artwork. Let him do what he is paid to do: he writes about this talented new artist in magazines and explains to other billionaires why the white canvas that the artist presented as a "work of art" is a symbol of the hollow society and absurdity of modern times. And from these professions. This seller is trying to get attention for this new artist.

BingMag.com Why are paintings being bought and sold at astronomical prices?

Now is the time Execution is stage 2 of the operation. You sell one or two of the paintings you have through well-known public auction houses such as Christie's or Sotheby's, and through a representative or lawyer you announce a price for it and ask a trusted person to do the same. And ask a few other people to play the part and announce imaginary prices to buy the painting to make the operation look real.

Let's assume that this group has succeeded. Raise the price of the painting to $ 10 million! Well done, but it's still too early to celebrate, because the only thing you can do so far is buy your own painting. You have just lost a little in the middle, because you have to give 2% of the commission money to the auction house.

But only here the issue becomes interesting. Now, all of a sudden, each of your paintings is worth $ 10 million based on your purchase history. Now the value of your collection has increased from $ 20 million to $ 200 million! Sounds great, doesn't it? Yes, but in reality you can hardly sell these paintings to a real buyer, so you have not become richer in practice. Let's say you made a lot of money during the year and now you have to pay taxes. That's a big deal, isn't it? But do not worry, as you can donate one or two of your paintings to the local museum.

They will, because they are receiving free paintings that the seller you have stacked up with has attracted the attention of art lovers.

This means you can donate $ 20 million to the museum Report to the Internal Revenue Service (IRS), where these donated paintings initially cost only $ 2 million. By doing so, you have exempted yourself from paying approximately $ 10 million in taxes. In the middle of this, the museum in question may put your name on one of its sections and invite you to its upcoming gatherings and celebrations, which will certainly not be too bad to satisfy your ego.

It took a while. The board is for all the people involved. You are exempt from paying taxes, the artist who painted the painting sold it at a price much higher than the real value of his painting and earned a reputation as a prestigious artist, the seller of works of art was paid for the service he rendered to you, the auctioneers sold (Albeit dishonestly) received a commission painting, and the museum that received the painting added a new, hot painting to its collection.

The theme of "contemporary art" should play its role well, because everyone benefits from this show. You may not know it, but this big industry is funded and subsidized by the IRS - that is, taxpayers.

. Because a work of art is a rectangle with beautiful designs drawn on it and its value depends on the agreement of the people about its value, just like a sheet of banknotes.

BingMag.com Why are paintings being bought and sold at astronomical prices?

Works of art are ideal for money transfer in creative ways, because they are easy to transport, difficult to track, and highly reputable, so no one will doubt the high price paid for them. If he does, he will simply be accused of not understanding art. Basically, artwork plays a bitcoin role for billionaires.

However, artwork has another important use

Starry night and budget for a rainy day

As mentioned, artwork is ideal for moving money, but another reason why the world's richest people are interested in buying it is that it is a high value physical asset of small size.

Think of all the things that can be bought for $ 100 million: for example, a private jet, a private boat, an extraordinarily stylish apartment, or lots of mortgaged/rentable stocks and properties that are guaranteed to be profitable.

Airplanes, boats and apartments look great, but the problem is that they are very large. If you want to keep your wealth secret, buying a personal 90-meter boat will ruin your plan. Recently, the cost of maintaining and caring for this boat, as well as the possibility of breakdown and depreciation, makes buying a boat a bad investment.

Buying stocks may be a better option, but most stocks purchased electronically these days So governments are fully aware of the transactions that take place in this area, and if you are laundering money, they can easily dismiss you.

The work of art is small, easy to maintain, worth it And best of all, its astronomical value may increase. For this reason, it is ideal to keep the artwork in an underground hiding place in a tax haven (where tax rates are low) or a free port so that you can sell it whenever necessary.

One of the most interesting uses for such assets is something that does not even occur to ordinary people.

This is a Richard Mille watch:

BingMag.com Why are paintings being bought and sold at astronomical prices?

Stubborn tablet enthusiasts have conflicting opinions about the watches of Richard Mill, a Swiss watchmaker, but those who like them are crazy. They love them, and it can be argued that they think these watches are examples of high-end artwork, at least in the way their economic market works.

This watch, pictured below, is priced at $ 3 million.

BingMag.com Why are paintings being bought and sold at astronomical prices?

This price tag is about $ 450 million for a crazy painting. The reason why watchmakers have allowed themselves to set such a price for a watch is the same reason given for the high price of works of art:

  • having a small number
  • Waiting for people to raise the price of sex
  • Cooking the rich with it for the rest of their rich friends
  • Performing a series of economically viable tricks through it

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: Economics Explained


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