A record was set last November as Christie’s New York celebrated the sale of Salvator Mundi. The painting, attributed to the Renaissance master Leonardo da Vinci, was sold to an anonymous buyer for a whopping $450,312,500, making it the most expensive work of art ever auctioned. The previous record holder, Picasso’s 1955 Les Femmes d’Alger fetched $179,364,992 in 2015. As economists, we may find such astronomical prices puzzling: If people are rational agents, why would they spend close to half a billion dollars on a painting? How can we understand a market in which these objects are exchanged at such high prices? The volatility of said prices and the uniqueness of each piece only make it that much harder for conventional economic principles to explain value determination in the art market.
When supply and demand curves fall short, cultural economists must look to industry leaders for their value theory. In his book, The Value of Art, Michael Findlay, an art dealer and gallery owner with one of the most impressive CVs in the industry, lays out a framework within which we can understand how the value of art is determined. Findlay’s theory on the determination of the value of art would not be unfamiliar to economists. He explains that works of art are not just “financial assets…that yield a return from their appreciation in value over time” but also “consumer durables”. As financial assets, they can be of varying quality. Analogizing the purchase of art to the purchase of securities, Findlay explains that there are “blue-chip works of art,” for example, pieces by Picasso or Monet, which will hold their resale value regardless of market conditions. In this respect, da Vinci’s Salvator Mundi is a great investment. As one of the two paintings by the Old Master that are not in museum collections, Salvator Mundi will always retain a high value if properly cared for. The painting proved to be a lucrative investment for its previous owner, Dmitry Rybolovlev, who bought the painting for $127.5 Million. Art dealer Philip Mould projects that Rybolovlev’s major sale will encourage the other da Vinci owner, the Duke of Buccleuch, to sell the painting. Mould predicts that if he sells Madonna of the Yarnwinder, it would sell for one billion dollars.
Others in the art world are however skeptical about the potential return on the painting because of its unprecedented price. Clare McAndrew, cultural economist and founder of the consulting and research firm Art Economics, maintains that the record-breaking price was the product of “a perfect art storm.” Part of that storm was, as one art magazine contributor calls it, “an unabashedly manipulative promotional campaign.” Deceptively calling the painting the “last Leonardo” in private hands and touring the work for public display in three American cities and Hong Kong, Christie’s auction house executed a monumental marketing campaign. The role of such a campaign that emphasized the one-in-a-lifetime nature of the sale suggests that even if the painting’s value appreciates in coming years, the current owner’s would not be able to cash in under less public and monumental circumstances. Consequently, one may consider Salvator Mundi as an exceptionally illiquid asset, its profitable sale potentially requiring an equally strategic campaign.