Liquid Value

J. J. Charlesworth follows the fickle flow of cash through the art market

by J. J. Charlesworth

“Now water can flow, or it can crash.

Be water, my friend…”
– Bruce Lee, speaking on The Pierre Berton Show, 9 December 1971, video excerpt from Hito Steyerl’s Liquidity Inc.
(2014)

This autumn marks a decade since the beginning of the global financial crisis, the ‘credit crunch’ that
started in the US subprime mortgage market and spread to the global banking sector, pushing the
world’s economies into recession and, for many people, ushering in a period marked by austerity in
public spending, downward pressure on wages and rising job insecurity.

And yet, in those same years the art market has been doing pretty well. Take a look at UBS and Art
Basel’s report The Art Market 2017 and you find that global art-market sales over the postcrash decade
barely noticed the ‘age of austerity’. After taking a dive in 2009 in the immediate aftermath of the
financial crisis, annual global art sales had soared to $68.2 billion by 2014, surpassing their precrash
2007 peak of $65.9b.

Unsurprisingly, the decade since the financial crisis has been marked by increasingly angry debates
about how the artworld is implicated in the machinations of a global economy, and in the interests of
the ‘1 percent’ – the global elite of the ultrawealthy who now seem to pay such close attention – and
commit so much of their disposable cash – to contemporary art. As the advanced economies have
stumbled along through the 2010s, much ink has been spilled over the growing disparity between the
wealthy and everyone else, and a new set of terms has entered our vocabulary to describe the
experience of economic and social life in the post-financial-crisis era. It’s the age of the ‘gig economy’,
of zero-hours contracts and of precarious labour; the age of lifelong student debt; of urban
gentrification and dwindling home ownership and stagnating real wages.

The commercial artworld, however, saw the same period through the lens of ever-increasing sums paid
for art objects. Just as the global financial services giant Lehman Brothers filed for bankruptcy on the
morning of 15 September 2008, Damien Hirst opened a two-day public auction of his work at Sotheby’s
in London. It made over £110m. The following years have seen records continuously broken. In 2013 Jeff
Koons’s Balloon Dog (Orange) (1994–2000) sold for $58.4m, then the most expensive single work by a
living artist ever hammered down at auction. In May this year, Jean-Michel Basquiat’s painting Untitled
(1982) became the most expensive work by an American artist, selling for $110.5m at Sotheby’s New
York.
 Jeff Koons, Balloon Dog (Orange), 1994–
2000, mirror-polished stainless steel with transparent colour coating, 307 × 363 × 114 cm. © the artist

The extreme visibility of the auction market, and the hype that surrounds each latest record price, tends
to provoke reactions of moral outrage and dismay at how much the ultrarich are prepared to pay for
artworks. But what’s less often asked is how, given the shaky state of our economies, the very wealthy
have come to have this wealth to dispose of, and more importantly, why they should want to put it into
artworks, of all things. Moralistic criticism is easy to come up with, but it doesn’t ask questions of the
nature of post-financial-crisis economic life.

If one steps back from the narrower fortunes of the art market, however, and takes a look at the bigger
economic story, one starts to understand the peculiar character of the decade since the financial crisis.
In a recent article in the New Statesman titled ‘How the world’s greatest financial experiment enriched
the rich’, the financial writer Christopher Thompson discusses the impact of a decade of ‘quantitative
easing’, the monetary policy employed by central banks since the crash to pump vast quantities of
invented money into the world financial system, in the hope of kickstarting economic recovery. As he
explains, in a little under a decade, central banks ‘in the US, Europe, the UK and Japan have inundated
financial markets with more than $8trn using a system dubbed “quantitative easing” (QE). This equates
to around $10,000 per man, woman and child in the countries whose currencies they guard.’

QE’s process is circuitous and its effects are not straightforward to explain, but as Thompson
summarises, central banks don’t just ‘print money’, ‘they do it by buying bonds, most of them issued by
governments, from financial institutions such as pension funds and insurance companies, which hold
them as investments’. In other words, government central banks generate electronic cash with which to
buy back government debt (bonds) from corporate investors. This has had two big effects. The first is
that interest rates have fallen; since there is more money around, it has become cheaper to borrow it,
with central bank rates near or even below zero. The other consequence, since QE has increased the
market value of bonds, and investors have sold their bonds, that money has gone elsewhere. As
Thompson puts it, ‘financiers have used the new-found money to go shopping, all at the same time.
Suddenly, demand for assets significantly exceeds supply. This pushes up the value of investment assets
– including shares, which have surged to record highs despite weak economic growth, and bonds, and
also fine art, London property and vintage Château Lafite.’

Property, wine and art. What’s significant about Thompson’s rollcall of asset types is that they produce
nothing in themselves and are characterised by their scarcity. In ‘global cities’ like London, the property
market has surged throughout the postcrisis decade, with average prices almost doubling between
2009 and 2017, according to the government’s own index.

But if scarce things produce nothing, why do the wealthy buy them? As art market commentators have
noted in the last few year years, one of the biggest trends in the commercial gallery market has been
the polarisation of the gallery system, with the biggest galleries doing well while ‘midlist’ and emerging
galleries shrink back; and at auction, the rising prices for individual artworks is a symptom of the
concentration of value in more expensive works. As The Art Market 2017 records, from around 2012
onwards, the fastest growing segment of artworks sold at auction were those priced above $5m.

The concentration of value in artworks at auction and the tilting of commercial power towards the
‘blue-chip’, upper end of the gallery system shows how much artworks have become a ‘refuge’ for
liquidity looking for security. The world is awash with cash, but this liquidity does not, as Thompson
notes, seem to be making much of a difference to economic growth.

Jean-Michel Basquiat, Untitled, 1982, acrylic, spray paint and

oil stick on canvas, 183 × 173 cm. Courtesy Sotheby’s, New York

What Thompson skims over, though, is that one big issue – of economic growth. While stock markets
have surged, and corporate profits have done well, growth in the G7 advanced economies has
weakened even further in the decade since the financial crisis. According to the IMF, GDP in the G7 has
grown by barely 2 percent annually since 2010. The 2000s managed only a little better, and these
decades compare poorly with the 90s, when growth was often around 3 percent; even in the strife-
ridden 1980s it was often over 4 percent.
This decline in growth over recent decades is dealt with in more depth by economist Phil Mullan, in his
book Creative Destruction: how to start an economic renaissance (2017). As Mullan argues, the causes
of slowing growth and growing financialisation lie in the slowdown of investment in new, more
productive economic capacity, and the tendency for older, less productive industries and businesses to
survive, rather than go bankrupt and be replaced by more productive competitors. The blunt assertion
of Creative Destruction is that while each recession of the past 50 years has been less severe,
subsequent recoveries have also been weaker. Investment in making the economy more productive has
declined, while corporate profits and cash reserves have grown, in what Mullan terms the rise of the
‘zombie economy’ – an assessment borne out by the current postcrash ‘jobless recovery’, marked by
historically low growth, rising debt (financed by the new wave of liquidity) and further declining
productivity.

In other words, however much liquidity there appears to be, however much ‘value’ it seems to
represent, it’s not being invested in revitalising the real economy. Economic growth is what makes
societies in general better off, and the absence of tangible growth is what makes the postcrisis decade
different to those that came before.

But if the tide of liquidity isn’t going into investing in R&D or new infrastructure or better
manufacturing, it has to find somewhere to go, and it is going into art. It’s not just going into single
artworks bought in galleries or at auctions, of course. Increasingly, it’s going into the building of
museums and private foundations set up by individuals, and the financing of new wings of public
galleries and more. One way or the other, these are all symptoms of the boom in assets in a time of
economic stagnation.

In Hito Steyerl’s jovial and uncanny video Liquidity Inc. (2014) the motif of water, weather, globalisation
and liquidity are twisted together into a kind of allusive visual poem about the chaotic forces of the
global economy. A young Vietnamese American, Jacob Wood, a financial broker made redundant in
the wake of the Lehman Brothers collapse, is seen working out and competing in a US mixed martial
arts tournament. His story (he came to the US as a child refugee) is interrupted by surreal scenes of
computer-generated water, hurricanes and storms, and a masked weather presenter who suggests that
you ask such questions as: ‘How did this gust arrive here? Where did it come from and who am I to be
blown by it?’ Steyerl’s hallucinatory narrative pitches individuals into a world of endless seas, with no
visible means of support, buffeted by an economic ‘atmosphere’ that exists independently of them, and
which they are powerless to influence or control.

Liquidity Inc. is an ode to the postcrisis decade, in which the real economy has become a hallucination,
and all that appears is a sea of numbers, in an everyday world in which everything, from rent to art, is
only getting more expensive, and in which even art objects are not rare enough to absorb the flood of
liquidity unleashed in the wake of the last crash.
 Hito Steyerl, Liquidity Inc., 2014,
single-channel HD video in architectural environment, 16:9, colour, sound, 30 min. Courtesy the artist
and KOW, Berlin

But if liquidity is a tide, some indications suggest that it may be turning away from art. After reaching
new heights in 2014, The Art Market 2017 reports that art sales declined to $62.8b in 2015 and then
$56.6b in 2016. The biggest contributor to that fall was the big drop in sales of art at auction, which
shrank by 26 percent between 2015 and 2016 (from $29.9b to $22.1b), and within auction sales, the
biggest decline was in those high-ticket $10m-plus artworks. Other indicators of a cooling in the auction
market include a rise in lots not achieving their reserve price and in works selling below their estimate.

The stuttering auction market’s focus on high-price items is a spectacularly public display of vast wealth
condensed into rare objects. But the dealer-led primary-sales market has also seen a concentration of
value in higher-priced works. And in the secondary market – those dealers who trade in works that have
previously been bought and sold – median prices have increased substantially between 2015 and 2016.
All these tendencies suggest a tightening of supply of artworks, as collectors look to a narrower range
of artworks whose future value is more assured.

In those circumstances, liquidity may start to flow elsewhere, into even more exotic forms of assets, as
demand for other older assets grows and their prices rise. One of those seems to be cryptocurrency –
as I write, the first cryptocurrency, bitcoin, has seen a massive rise in its market value. At the start of
2017 it was trading around $750. In October its price soared to over $5,000. Investment funds are piling
in.

The art market has started to take note of this strange new type of asset-currency, and financial
entrepreneurs have seen an opportunity to fuse the art market with cryptocurrency. This summer saw
the launch of Maecenas, a cryptocurrency based art-trading platform, which offers investors the
possibility of buying into shares of high-value artworks, rather than buying and selling individual works.
Actually, they’re not exactly shares, but asset-backed certificates: the owner of a work retains ownership,
raising money by auctioning these certificates, which can then be traded on Maecenas’s own trading
platform. The promise is of a more ‘liquid’ and transparent market, in which the value of an artwork will
be set by a market of multiple buyers. The prospect, of course, is that the ‘value’ of individual artworks
will rise as investors who don’t have $50m to buy a whole Jeff Koons start buying into parts of a Koons,
or square centimetres of a Gerhardt Richter painting. Hidden in secure vaults, artworks won’t have to be
traded between billionaires, but instead fractionalised by smaller investors, all buying into the promise
of rising prices.

Beyond the hype of such a scheme, one can detect the prospect of yet another asset bubble, as
investors scramble to find ways to put their wealth into assets that promise guaranteed growth.
Meanwhile, in the real world, real growth, as measured by how much is produced in a given period of
working time – productivity – continues to stall. As Mullan points out in Creative Destruction,
investment in R&D and capital investment across the developed economies continues to wane. The tide
of liquidity that has washed into the art market should be understood, not in moralistic soundbites
about the greed of the ‘1 percent’, but as the long-term failure of our capitalist economies to produce
more wealth for everyone. Producing more, however, is itself controversial today, at a time when
radicals prefer to insist that we already have ‘too much’, and are more at home talking about ‘de-
growth’ than about prosperity.

And yet, if there’s no renewed debate about what prosperity means and society’s ability and willingness
to renew economic growth, the real economy will continue to stagnate, while being subject to
increasingly extreme flows and crashes of finance and fictitious capital.

In Steyerl’s video, nothing solid is visible, only an endless sea of liquidity, with nothing on the horizon.

Hito Steyerl, Liquidity Inc., 2014, single-channel

HD video in architectural environment, 16:9, colour, sound, 30 min. Courtesy the artist and KOW, Berlin

From the November 2017 Power 100 issue of ArtReview