The Economics of American art

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The Economics of American Art

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1

The Economics

of American Art

Issues, Artists, and

Market Institutions

ROBERT B. EKELUND, JR.,

JOHN D. JACKSON, AND

ROBERT D. TOLLISON

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Library of Congress Cataloging-in-Publication Data

Names: Ekelund, Robert B. (Robert Burton), 1940– author,

Jackson, John D., Tollison, Robert D.

Title: The economics of American art : issues, artists and market

institutions / Robert B. Ekelund, Jr., John D. Jackson, Robert D. Tollison.

Description: New York : Oxford University Press, 2017. |

Includes bibliographical references.

Identifiers: LCCN 2016052819 | ISBN 9780190657895 (hardback : alk. paper) |

ISBN 9780190657901 (upub)

Subjects: LCSH: Art—Economic aspects—United States.

Classification: LCC N8600 .E39 2017 | DDC 707—dc23

LC record available at https://lccn.loc.gov/2016052819

9 8 7 6 5 4 3 2 1

Printed by Sheridan Books, Inc., United States of America

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For Mark, Martha Gale, and Anna

and

For the late Bob Tollison, whose love, dedication to

economics, and influence endure

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Contents

Preface  xi

CHAPTER 1. Markets, Culture, and American Art 1

Economics as a Conduit for Analyzing Culture and Art? 5

Why a Book on the American Art Market? 9

Credence: A Central Issue Relating Economics to Art 10

Interesting Questions Posed in the American Art Marketplace 12

CHAPTER 2. Dimensions of the American Art Market 16

The Marketplace of American Art: Early Period 17

Shifting Demand Parameters 20

The American Art Market at the Opening of the

Twentieth Century 25

The Armory Show 1913, Stieglitz, and American Modernism 27

Postwar Ascendance of American Art 31

Art, Politics, and Then-Contemporary Art 33

Changes in the Markets for Contemporary American Art 36

American Artists Used in Formal Studies in This Book 37

Artistic Styles 40

Buying and Selling American Art 44

Auction Sales of American Art 46

The Credence Factor and the Auction Market 49

American Art and Institutional Change 52

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CHAPTER 3. Mystery of the Artist’s Nature: Creativity, Age,

and Economics 56

The Age-Creativity Relation and American Artists 58

The Artist and Societal Structures 58

The Economist Speaks 60

Artists Born Prior to 1900 and the Age-Productivity Hypothesis 61

Artists Born between 1900 and 1960 and the Age-Productivity

Hypothesis 63

Measurement and Model Specification 65

Artists Born before 1900 65

A Fixed-Effects Model 76

Data on Cohort of Artists Born between 1900 and 1960 78

A Fixed-Effects Model of Artists Born Post-1900 83

Is the Growth of “Innovation” Positive through Time? 84

The Use of Anecdotal or “Bibliometric” Evidence 87

Anecdotal Analysis of Georgia O’keeffe 88

Anecdote and Jackson Pollock 90

Schools and Creativity 96

Factors Affecting Creativity 100

CHAPTER 4. American Art, “Experts,” and Auction Institutions 104

Experts, Credence, and the Auction Process 106

Auction Houses and Credence 106

Estimating Auction Bias 107

Buyers’ and Sellers’ Premiums 111

Estimation Procedure 113

A Model for Investigating Bias in Presale Auction Estimates 114

Predicting No-Sales 121

Are American Paintings That Do Not Sell “Burned”? 125

Premium Manipulations and Auction-House Profits 130

Artists and Auction Markets 136

CHAPTER 5. Early and Contemporary American Art as

Investment Vehicles 139

American Art as an Investment Vehicle 140

Art as an Investment: Conventional Wisdom 142

Returns to American Art Investment 144

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Methodological Considerations 145

Repeat-Sales versus Hedonic Approaches: Pros and Cons 146

Data Considerations in Our Analysis of Early American Art 150

Repeat-Sales Investment Estimates: Early Period 151

Hedonic Investment-Return Estimates: Early Sample 156

Investment-Return Estimates for Contemporary Art 162

Data Considerations in Our Analysis of Contemporary

American Art 163

Hedonic Results for Contemporary Artists 164

Repeat-Sales Results 165

Early American versus Contemporary American Art: Two

Distinct Markets 168

Investment in American Art 169

CHAPTER 6. American Art and Illegal Activity: An

Economic Perspective 171

Credence and Information Costs 172

Art Theft 173

Art Theft: General Considerations 175

Marginal Benefits of Art Theft 176

Marginal Costs of Art Theft: Apprehension,

Conviction, Severity 177

Evolution of the Market for Art-Theft Enforcement: An

Economic Analysis 179

The Market Responds 182

The Economics: Demand, Supply, and Information 184

Fakes and Forgeries 187

Print Forgery 190

The Benefits and Costs of Fakes and Forgeries 192

Credence and Examples of Forgery and Art Crime 195

Fake Detection: Provenance and Science 200

Economists Predict That Theft and Fakes Will Continue 205

CHAPTER 7. The Impact of Death and Bubbles in American Art 208

The Death Effect in Art 208

An Artist’s Death and Economic Theory 210

The Coase Conjecture 210

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What a “Death Effect” Is Not 212

Empirical Studies of the Death Effect 214

Empirical Issues in Studying a Death Effect 217

Contemporary American Art: An Idiosyncratic Death Effect? 221

Is There a Bubble in the American Art Market? 226

What Is a Bubble, and How Does It Relate to the Art Market? 228

Economic Conceptions of “Bubbles” 229

Do Bubbles Characterize American Art? 232

The Contemporary Boom for Artists Born Post-1950:

A Bubble? 238

Soaring Art Prices at the Top: A Digression on the “Museum

Externality” 241

Art “Bubbles,” Ponzi Schemes, and Economic Rationality 246

Death and Bubbles 248

CHAPTER 8. The Ongoing Evolution of the Market for

American Art 250

Central Issues in the Art Market 250

Credence, Fakes, and Opacity in the American Art Market 252

American Art Aesthetics and the Evolution of Market

Institutions 253

Is the American Art Market Free and Efficient in an

Economic Sense? 257

Appendices  261

Notes  291

References  333

Index 349

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Preface

A RAPIDLY CHANGING and evolving art market would appear to be chaotic to

the casual observer, with new highs, potential lows, and tastes and fashions

changing from season to season. Economists, however, view the actions of

buyers and sellers as constituting an identifiable market. They have, for some

decades, studied such issues as artistic productivity and “death effects” on

prices, investment returns on art, and estimated prices in auction markets.

Our book, using simple economics and both narrative and statistical eco￾nomic tools, presents, in easily readable style, an analysis of these and many

more issues such as art crime and possible art “bubbles.” This book, however,

is uniquely applied to the entire spectrum of American art rather than “art”

as a homogeneous category. Further, our approach follows the accepted aca￾demic tradition of the study of art by economists over the past three or four

decades. While American art has influenced world art in the post-1950 era, it

was clearly a distinct market prior to that, a fact demonstrated in Chapter 5.

American art was created and bought, almost exclusively, by Americans pre￾1950. The reader is thus provided with a background in the marketing of that

art and a basis for understanding today’s “hot” Contemporary art traded at

astronomical prices. We aim at readership in the community of “cultural

economists,” dealers, collectors, auctioneers, regulators, museum directors,

curators, and the artistic community at large.

These applications of economics to “treasures” may seem strange to many

in the art world, especially art historians. Many may tend to view it as an ex￾ercise in what is often termed “economic imperialism”—that is, the use of

economics as a tool to study history, politics, religion, marriage, the family,

and many other areas, outside the normal range of economics. But the study

of cultural economics generally and the economics of art markets in partic￾ular does not rely on “implicit commodities,” such as religious belief or love

or marriage. Naturally there is return to art that is beyond a monetary price.

It includes the pleasure we receive from holding and viewing it, or making

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friends jealous. However, art is undeniably a physical good that is always

traded at a monetary price. Naturally economists do not avoid the difficult-to￾price aspects of buying art—such as the pleasure we get from looking at it—

but these are in addition to the observable prices at auction or in dealer sales.

This study has had a long history. Almost two decades ago, along with

growing interests in the application of economics to religion and culture, an

initial inquiry into the “efficiency” of auction estimates and a possible “death

effect” was conducted using a small sample of Mexican art (Ekelund, Ressler,

and Watson 1998, 2000). Interest in museums and their functioning was

stimulated by a number of factors: by the planning and opening of a univer￾sity museum at Auburn University in 2003; by research into museum attend￾ance (Skinner, Jackson, and Ekelund 2009); and by one of the present authors

(Ekelund) serving as acting co-director of the Jule Collins Smith Museum of

Fine Art at Auburn University. These factors and the advice of the Museum’s

initial director, Dr. Michael DeMarshe, together with the sage advice of Curator

Dr. Catherine Walsh, noted collectors Noel and Kathy Wadsworth of Atlanta,

Georgia, as well as friends Nancy Hartsfield, Kay DeMarsche, and Dr. Taylor

Littleton, led us to economic studies relating to American Art. We recognized,

even at this early date, that issues such as investment return, auction evalua￾tions, productivity, and “bubbles” were being analyzed for “art” as a homoge￾neous entity, but that little work had been directed specifically to the market

for American art. Thus began a multiyear and ongoing odyssey into these and

many other aspects, including the history, of the American art market.

Our technical analysis (Ekelund, Jackson, Tollison 2013, 2015; Anderson,

Ekelund, Jackson, and Tollison 2015) began with small samples of early (pre￾1950) artists, some of them grouped into “schools” (e.g., the ashcan school of

the early twentieth century). Those studies evolved into a full-scale analysis of

eighty major American artists from the nineteenth and twentieth centuries

and a sample of more than 14,000 observations. However, the “story” of the

American art market cannot be told or even approximated with technical anal￾ysis alone, however interesting. A narrative of the history and development of

that market, as we find it today, must provide a centerpiece for discussion of

the evolution of markets for American art. The result is this book, which we

hope will give both the economist and many in the art community (experts,

dealers, museum curators, and so on) an initial window into the functioning

of and ongoing developments in the art market.

No work of this magnitude and coverage could exist without the critical

inputs of experts in its chief subject. We have benefited in critical ways by

associations and interviews with art experts based in New York City. Betty

Krulik, owner and director of Krulik Fine Arts, recent president of the

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Preface xiii

American Art Appraisers Association and an authority on American art, was

unstinting in providing information on the nature of the historical and pre￾sent market. No less helpful was Katherine Dehn, director of the revered

Krushaar Gallery in New York City. Their vast personal knowledge of the art￾ists and the market that comprises American art is reflected in this book from

beginning to end. This group certainly includes Jean Belt, art appraiser extra￾ordinaire, who helped keep us abreast of art market functioning on a regular

basis over the years of this book’s development. The input, suggestions, and

references provided by Tom Butler, two-decade director of the Columbus Art

Museum in Columbus, Georgia, have been extremely important. In addition,

American art collectors Dr. Philip and Lorraine Brewer and Thornton and Sue

Jordan of Columbus, Georgia, stimulated our interest in American art with

discussion and analysis. Brief conversations (Ekelund’s) with the late Thomas

Hoving, former director of the Metropolitan Museum of Art, and Phillipe de

Montebello, also a former director of that Museum, both visitors to the uni￾versity museum at Auburn, helped stimulate many ideas found in our book.

Conversations with Serge Guilbaut at the Jule Collins Smith Museum, an au￾thority on the move of the center of the art market from Paris to New York

City, were also helpful. Similarly, we are extremely grateful to Dr. Katherine

Graddy, editor of the Journal of Cultural Economics, for encouraging and help￾ful comments on our work. Professors Mark Thornton of Auburn University,

William Shughart of Utah State University, Mark Crain of Lafayette College,

Professors Sarah Skinner and Keith Watson of The University of Louisiana at

Lafayette, Professor Rand Ressler of Georgia Southern University, Professor

Seth Anderson and Professors William Dougan and Howard Bodenhorn of

Clemson University read large portions of our manuscript and made helpful

comments. Discussions with the late Joseph Ansell, David Braly, and over the

years with John and Mary Jane Roper and Dr. Ed Hayes, M.D. have been ex￾tremely helpful. We thank all of them.

Two individuals were most critical in orienting our view of American art

for this study, as well as for sage inputs on so many of the aspects of the market

discussed in this book. These two individuals are Dr. Marilyn Laufer, director

of the Jule Collins Smith Museum of Art at Auburn University, and Dennis

Harper, chief curator of that museum. Their guidance and suggestions as we

traveled through this extensive project were invaluable. Their knowledge and

love for art generally, and American art specifically—and their willingness to

spend time in countless informal interviews—were central to the concepts

and completion of this book. We cannot thank them enough. Despite all this

wonderful help and advice, they and the rest of our advisors are innocent of

what we chose to include or exclude here.

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A book with three authors naturally follows some specialization and

some explanation of division of labor. Ekelund and the late Bob Tollison were

working partners in applied microeconomics and economic history for four

decades. They developed many of the topical and theoretical scenarios of

economics applied to American art. But many of these topics have become

operational only with statistical testing. These tests required sophisticated ex￾pert input, and no one filled that bill better than John D. Jackson, Ekelund’s

colleague at Auburn University, whose matchless expertise created most of

the original technical extensions of theory into new results based solely on

American art data. His superlative work and intuition are reflected in the en￾tire book. Data gathering for our “tests” was tedious and time-consuming.

We wish to thank Josh Griffin, Dr. Jonathan Newman, and Dr. Sarah Seals for

many hundred hours of steady and accurate work. The editing skills of Harry

David and Dr. Richard Ault helped us avoid many grammatical and literary

mistakes in our presentation. We are also grateful to the Southern Economic

Journal, Applied Economics, and the Journal of Cultural Economics for formal

permission to use portions of earlier papers in this book.

The shocking and unexpected passing of Robert Tollison in October 2016,

just as this book entered the production phase, in no way lessens his critical

input into his last of many works. Bob was and will continue to be an inspi￾ration to generations of economists as a result of both his teaching and his

extensive research. Best known as the one of the principal exemplars of public

choice and areas of applied economics, such as sports economics and the ec￾onomics of religion, Bob was nothing less than a creative genius in the appli￾cation of economics to many areas of life. Many of the ideas in this book owe

their origin to Tollison. As grateful as we are for his life as an economist, we

and so many are even more grateful for his unmatched friendship and gener￾osity of spirit. We are all poorer for his passing.

Finally, one thing we have learned in executing this project must be

emphasized. Unlike the well-known and established painters considered in

this book—those who have so obviously “made it” by being included in the

secondary (auction) markets on a routine basis—there are thousands (perhaps

more than several hundred thousand) of artists who must live modestly, must

take “day jobs,” with extremely limited incomes. The same is sadly true for

musicians, actors, athletes, and others over time. Waiting tables, parking cars,

and engaging in jobs unrelated to art do not appear to be permanent imped￾iments to perform the activity that they love. There is always that unlikely

chance that luck will find them, that they will be discovered by a major gal￾lery, appear regularly at auction, and that they will find success in enlightened