Long-run returns to art

This article sheds light on the long-run returns on works of art. It says that Raphael’s Miraculous Draught of Fishes was sold for £2000 in 1649, after its owner, Charles I, ran into some bad luck, and is now worth over £80 million.

This is a nominal increase of just over 3% a year, implying a real increase of a mere 1.8%; gold has risen a nominal 1.3% during this time. This is in line with the estimates given in this paper (pdf) on the economics of art.

Of course, some of the returns to art are non-financial; paintings are easier on the eye than stock certificates. But they are also eaten up by storage and insurance costs.

And a hefty chunk of this 3% is a reward for taking risk. There’s been a substantial risk of appropriation during this time - many of Charles I’s paintings, sold in 1649,  were re-acquired by the Crown after the Restoration – not to mention damage or just changing public taste.

There are two lessons here. First, the power of compounding is a great thing indeed.

Second, if the long-run real return on what is now universally regarded as a masterpiece is so low, why should we assume there’ll be higher long-term returns on lesser-quality assets, except as a return for genuine risks?

Comments

[Robert Schwartz]

there was a paper like this many years ago in The Public Interest.

[Matthew]

Isn't this 3% just in line with world (or western) GDP growth over the period, telling us that people, or perhaps 'society', value the painting in terms of their incomes about as much now as they did then.

Thus paintings aren't really 'investments' any more than coal is.