470 LUCIA LEUNG-SEA SJU · Yuan ' ·) 20o2 ( ) . e 1ll "B h' d the Curtams of the Long-term Market-Maker CEDTIC· B eaten b!, Greed and Over-confidence (j.£JJ!H�JI±""til rp �<[!jllEfl::lfi& fl!ijt�;fn : 6 i'!'it�), · Chengdu: SCience and Wealth Va Cf4"l".$Uit'liJ;t{Jl:{Jl'*flJJ CHAPTER 24 lue "'�' ,20021 7. Zh ang, )(. 2001) . "Review of the Tremor of Event 32/' Bull stock r ( "' IJD.7Rm") . o"inion ·-rwmo•. n , 4· <h ttp. www. u goo.com 11 . ....................................................................................................... n 1magazme . I 2001-11-15/ghgc.php> (online financial blog accesse d on 15,2007). May '-' Zhu, Y.-G. (1998). "Three Trading Climaxes in the Contemporary Shanghai Stoc k M ark " e!· THE FINANCIALIZATION Chlnas'E conom1c ·H /Story· R h esearc ('I'�16\f!J!f 5io1i.if'li:) Journal 3.· 58 _ 70. Z ou, ,- ·s ' M (2010 ) "Wh . at are the Historical Contributions and Future Respons1 'b'l't' 11 1es o f OF ART Chi < . nas' St oc1 M ark ,,ets. h S angha1: Shanghai Securities News ( --1::A"FnlL'lJ"'fOC'""""'8*") , D ecember 30. ....................................................................................................... OLAV VELTHUIS AND ERICA COSLOR INTRODUCTION .................................................................................................................................................................................... Compared with financialmarkets, the art market is negligible in terms of size and spec­ ulative activity. In 2007, for instance, annual turnover on the global art market was esti­ mated to be $48.1 billion (McAndrew 2009: 13) while average daily turnover on the global foreign exchange market in the same year was $3.2 trillion, with $4 trillion by 2010.1 Nevertheless, in the last 40 years art has evolved into a recognizable financial asset category that today is implicated ln a wide range of financialtransactions. Works of art are used as collateral in order to secure multimillion-dollar bank loans, they are or have been part of the portfolios of pension funds, and since the late 196os various attempts have been made to establish investment funds that focus on art As the cultural econo­ mist Claire McAndrew claimed, " [ t ]he growth of art funds and other professional art investment vehicles bears out the fact that both individuals and institutions have now fully embraced the notion of art as an asset class for investment" (2009: 27).2 In short, the art market has become or is in the process of becoming financialized.By this, we mean that art markets have seen the emergence of new financialinstruments and that they have become affected by "the increasing role of financial motives, financial markets, financial actors and financial institutions the operation of ... economies" (Epstein 2005: 3; additional definitions of financialization in Krippner 2005; Aalbers 2oo8; Sassen 2001). The financialization of art merits the attention of social scientists studying finance for a number of reasons. First of all, in spite of the fact that the investment potential of art has long been recognized (section one), its recent financializationhas been resisted by both members of the art world and of the financialmarkets. Members of the art world have opposed the definition of art as an asset class and the commensuration efforts which this definitionentails (see second section). Members of the finandalcommunity, 472 OLAV VELTHUIS AND ERICA COSLOR THE FINANCIALIZATION OF ART 473 in contrast, have hesitated to recognize art as a valid asset class because of the art mar­ the interest in art for investment purposes may be attributed to wider economic devel­ ket's lack of liquidity, transparency, and standardization. Their opposition has, however, opments that made traditional investments less attractive and prompted investors to ' gradually eroded in a three-stage process of increasing rationalization and scientization look for alternatives. In particular, worries about inflation helped to increase the legiti­ of the market. As part of this process, art investment has been legitimated by adopting macy of art as a hedge. British scholar Gerald Reidinger wrote in TheEconomics ofTaste, role models, organizational blueprints, and market devices from the world of finance a three-volume historical analysis of the art market, that "[b]y the midclie of the 1950s, (section three). Economists have played a key role in this process of rationalization and after two world wars, a world financialdepression, and a world wave of currency infla­ scientization: they have developed price indexes that, by rendering art recognizable as tion, 'art as an investment' had lost any stigma that it might once have possessed" (quoted an asset class, function as boundary objects (see fourth section). But in spite of the mar­ in Horowitz zon: 159). It would be another decade before the firstart investment vehi­ ket-making efforts of economists and other "institutional entrepreneurs" ( cf., Battilana, cles were launched. Leca, and Boxenbaum zoo9 ), the financialization of art is hardly complete. This is pre­ dominantly caused by continuing information asymmetries and failure to construct THE CULTURE OF THE MARKET: liquidity in art markets (section five). AGAINST SPECULATION . ..................................... ...... ...... ........................... , ........................................ ........................................................ THE EVOLUTION OF ART AS AN . INVESTMENT GOOD The financialization of art should not be seen as an automatic process propelled by dis­ .................................................................................................................................................................................... satisfaction with existing investment opportunities and the search for alternatives such as art. In contrast, it has been a �COntested processwhich involved a definitional struggle In contrast to the newer financialinstrument interest, art has been perceived as a store of between two groups of actors (cf., Smith 2007 ): the financial community and the art value for hundreds of years. "Paintings are as valuable as gold bars;' the Marquis de world, which each draw upon their own evaluation practices (MacKenzie 2010) and Coulanges remarked in the seventeenth century (cited in Watson 1992: 157). In the nine­ invoke different orders of worth (Stark 2009). On the one hand, members of the finan­ teenth century, the Rothschild banking family allegedly acquired art in order to diver­ cial community seek to transform art into an asset class, which requires standardization, sify its portfolio. The family invested their wealth by thirds: equities, real estate, and the commensuration, and quantification. Reasoning from what Viviana Zelizer (2ooo) has remainder in jewelry, art, and cash (Ferguson 1998). In the early twentieth century, the called a "Nothing But" perspective, in which two apparently distinct spheres-in this forerunner of an art investment fund was established by French financier and art lover case, the art world and the financialmarkets-are reduced to one on the basis of some Andre Level, who pooled together money from 12 other investors to found the Peau de general principle, they define a work of art as "Nothing But" an investment opportunity. LOurs (Skin of the Bear) scheme. The funds were used to buy more than 100 works of art As justin Williams, one of the founders of the Art Trading Fund, comments provoca­ from artists such as Picasso and Matisse, who were still in the early stages of their careers. tively: "for me art is just a commodity, it's a cold thing. I have collected well, but I see art In 1914, the entire collection was liquidated. The sales prices for the works were, on aver­ as a P&L [profit and loss account] on the wall" (quoted in johnson 2007a). age, quadruple the original acquisition prices (Fitzgerald 1995). Small-scale, informal, This definition has been opposed by members of the art world, including art dealers, and largely undocumented investment groups like the Peau de LOurs have continued to collectors, and artists, who see art as a unique, incommensurable, cultural or aesthetic exist, not just in the West but also in the emerging art markets oflndia and China. They object, and try to shield it from financial or commercial concerns. For these actors, the are the art market's equivalent of private investment clubs in the stock market (see art world and the financial markets are an instance of what Zelizer calls "HostileWorlds" Harrington zooS). (Zelizer 2ooo; Coslor 2010 ): they assume that an intrinsic conflict exists between art and The financializationof art is a more recent phenomenon, however: since the late 196os money and that the incommensurable value of art is at risk once it is standardized and amateur art buyers have been joined in a piecemeal fashion by large, professional inves­ transformed into a "speculative object" (Espeland and Stevens 1998). As one dealer put tors, such as investment funds, pension funds, and high net worth individuals who have it, investment funds are "dangerous, and unsafe for the market. They havenot been set ample experience with and knowledge about financial markets. The financialization of up for the right reasons and are destroying the notion of what art stands for, aesthetic art takes offin the 1960s for at least two reasons: first of all, economists have pointed at beauty and to be admired in one's private collection or in a museum" (quoted in the high prices for art in that