Art as a Wartime Investment: Conspicuous Consumption and Discretion

Abstract

The financial underperformance of art as an investment is well documented. In contrast to studies conducted on peace-time periods, this paper shows that the art market in occupied France during WWII significantly outperformed all alternative investments (bonds, equities, as well as currencies exchanged on the black market) other than gold. This suggests that art may be a good hedge against low-probability disasters. The paper further demonstrates that motives to purchase art (consumption and investment) vary over time. In his theoretical model, Mandel (2009) attributes art's low return to the utility derived from conspicuous consumption. In occupied France during WWII, conspicuous consumption was impossible for artworks deemed "degenerate" by the Nazis. The price evolution of "degenerate" versus "non-degenerate" artworks confirms the importance of conspicuous consumption in artworks' pricing. Eventually, the paper defines the concept of discretion, the ability to store a large amount of value in small and easily transportable goods. During wartime, illegal activities and the risk of being forced to flee the country increased the interest for discreet assets as shown by the better performance of small (and thus discreet) artworks in comparison to large ones. ABSTRACTThe financial underperformance of art as an investment is well documented. In contrast to studies conducted on peace-time periods, this paper shows that the art market in occupied France during WWII significantly outperformed all alternative investments (bonds, equities, as well as currencies exchanged on the black market) other than gold.This suggests that art may be a good hedge against low-probability disasters. The paper further demonstrates that motives to purchase art (consumption and investment) vary over time. In his theoretical model, Mandel (2009) attributes art's low return to the utility derived from conspicuous consumption. In occupied France during WWII, conspicuous consumption was impossible for artworks deemed "degenerate" by the Nazis. The price evolution of "degenerate" versus "non-degenerate" artworks confirms the importance of conspicuous consumption in artworks' pricing. Eventually, the paper defines the concept of discretion, the ability to store a large amount of value in small and easily transportable goods. During wartime, illegal activities and the risk of being forced to flee the country increased the interest for discreet assets as shown by the better performance of small (and thus discreet) artworks in comparison to large ones.

Price formation on clandestine markets: the case of the Paris gold market during the Second World War

“…Oosterlinck, ‘Art’. Buying real goods to conceal illegal profits was common ‘long before the Liberation’; Mouré and Grenard, ‘Traitors’, p. 978.…”

Artworks without names: an insight into the market for anonymous paintings

“…The inclusion of artist dummies in econometric models is now a common practice to create accurate price indices and to better understand the process of pricing artworks (Campos and Leite-Barbosa 2009). For instance, 68 old master names are included in Ginsburgh and Schwed (1992), 410 Russian artists in Renneboog and Spaenjers (2011), 10,442 names from all art movements in Renneboog and Spaenjers (2013), 2938 Polish artists in Witkowska (2014), and 1996 names in Oosterlinck (2017). If the coefficients picked up by these dummies are not systematically detailed-because of the size of the samples-most studies confirm that the artist name, in conjunction with its recognition, reputation and popularity, significantly affects prices.…”

Colleague Collectors: A Statistical Analysis of Artists’ Collecting Networks in Nineteenth-Century New York

“…Buyers at auction may have a varied set of objectives ranging from investment to consumption. In some instances and as shown by Mandel (2009) and Oosterlinck (2013) conspicuous consumption may become an important driver of art prices. In the case of galleries, and even though many gallery owners are at heart art lovers enjoying the consumption of artworks, revenues from art sales have to be high enough to allow the gallery to survive.…”