As many of you are aware, I have spent a great deal of time and effort over the past few years in modeling and quantifying the value of arts and cultural activities to the overall economy. When fully considered, this creative process is responsible for about 15% of global business activity. Its role literally cannot be overemphasized.
The value of culture recently came into focus in a starkly different manner when Pablo Picasso’s Boy with a Pipe sold at auction for more than $104 million. This price shattered the record obtained by an 1890 portrait by Vincent Van Gogh that sold for more than $80 million more than a decade ago. What makes a painting by a 24-year old artist whose best days are yet to come so valuable?
There are some aesthetics that account for this price. The painting is a rare major work from Picasso’s “Rose Period,” a reference to the color that dominated his work for a short span of time. The date of the painting is also significant. It was completed in 1905, which is only a few months before he began to develop (along with Georges Braque) Cubism and other more abstract forms. This transformation, as well as the Abstract Expressionist movement which occurred almost simultaneously, emerged shortly after Albert Einstein introduced the concept of special relativity. Free form literary movements also surfaced at about the same time. I suppose the world had to abandon Newton’s determinism for Einstein’s warping before we could embrace similar paradigms in other fields.
In any case, Picasso lived a long and very productive life, was a pioneer in several movements, and was without question the most important artist of the 20th Century. In some respects, his accomplishments and influence later in his career added to the mystique of and interest in his earlier works. For some, but certainly not all observers, the fact that it is “pretty” rather than abstract actually adds to its appeal.
None of that, however, answers the question of what makes a single painting sell for over $100 million while a medicine with the power of life and death may be available for a few dollars (or even pennies in some cases)? A similar question is what causes a Michael Jordan, Tiger Woods, or Tom Hanks to earn many times as much as a school teacher who arguably contributes more to social welfare and progress?
The answer is very old, but often forgotten—scarcity!! In a market based economy, the value of anything is what someone will pay for it. Adam Smith wrote about it in 1776 as he laid out the foundations of markets in a formal setting (that had been around in one guise or another for millennia). He referred to it as the “diamonds and water” paradox. Diamonds, which served few useful purposes (and even fewer back then) were quite expensive, yet something as essential as water was either free or very near so (that was a year or two before they started putting it in small bottles with designer labels). The point was simply scarcity relative to demand creates value. It was the case then, and it still is today. Michael, Tiger, and Tom do things we like and are willing to pay for, and not many (if any) others can do the same things as well; it’s as simple as that.
Now, back to our Boy with a Pipe. Though a grueling process, critics, connoisseurs, and the public at large have determined that—of all those who have attempted to draw, paint, or sculpt in the annals of history—Picasso is one of the elite. He became so prolific in his later years that scarcity became less of an issue, thus causing some of his other (arguably superior) works to command much lower prices (the very best ones have not come on the market and are unlikely to do so in the foreseeable future, as they are safely ensconced in major museums with sizable endowments). A major early Picasso has the essential advantage of scarcity. It also has the necessary characteristic of being in high demand. Works of this magnitude are almost never available, thus creating a great deal of “buzz.” Fortunately, we have determined as a global community that great art is to be treasured and pursued.
Boy with a Pipe sold for $104 million because it is scarce and because it is in demand. There is no more to it than that.