Michael J. Medina

The art-world as a marketplace has always been a difficult space to properly describe in economic terms. On one hand, it might seem simple to declare that art markets are merely the exchange of goods for their respective values, like any other transaction. However, this explanation is complicated by the fact that art is fundamentally different from many other so-called “goods”.

Leaving aside questions about the origins and definition of art, a large problem facing economic analyses of art markets is the so-called “Art Value Paradox” formulated by economist Cameron Weber. In Weber’s view, artworks “contain properties that give value beyond exchange value” (exchange value referring to their monetary price), owing to the belief that artworks are fundamentally different than other economic goods. Paraphrasing economist David Throsby, Weber notes that art possesses aesthetic, spiritual, social, historical, authentic, and symbolic value – cultural-values not derived or realized through buying and selling as with other economic goods. Likewise, art is consumed differently from other economic goods, via cultural consumption and appreciation that differ fundamentally from goods such as food or energy. Therefore, the paradox rests in the contradiction that art as an economic good derives its monetary price from non-monetary properties, raising questions as to what determines its overall value.

Another key issue regarding the Art Value Paradox is that of scarcity. In orthodox economic schools, which concern themselves with theories of profit, utility, and price, value is often derived by assuming goods are scarce. This scarcity then drives pressures of supply and demand, leading to economic activities of the transactional exchange. However, unlike other goods art is not scarce – the supply of art vastly exceeds the demand for it. It might seem bizarre how art markets regularly witness exuberantly high prices (at the highest echelons of the art-world) that would seem unthinkable for a non-scarce resource. Similarly, Weber recalls the notion of the “starving artist” as an example of art’s seeming non-scarcity when considered in terms of supply and demand. For artists below the highest ranks of the art-world, the demand for labour and artistic work is mostly outpaced by a particular artist’s supply. This creates a volatile market environment where scarcity differs wildly amongst the same type of good.

Weber, however, notes that art is scarce not as a kind of good, but rather in artworks themselves as holders of cultural value. Each artwork is a unique creative object, possessing creative-cultural value on both material and abstract levels. Creative-level status is assigned to the artwork being sold, contributing to its eventual exchange within the art market. However, this creative-cultural value, continually debated alongside the artistic value and quality of artworks, is difficult to locate and explain, as judging art is largely subjective. As a result, unlike other material scarce goods such as gold, art does not have set values and exchange prices.

Even beyond questions of scarcity, the paradox of an artwork’s value origin remains. Absent material scarcity and easily definable prices, the valuation of art as an economic good could be said to be arbitrarily decided by buyers and sellers. To investigate this label’s validity, we turn to a contemporary example of this problem within the art-world, the case of Non-Fungible Tokens (NFTs).

            An NFT is a digital token that serves as a non-interchangeable (fungible) proof of varied ownership for a particular digital item. Their storage on a cryptographic ledger known as a blockchain enables secure and retainable authentication of ownership for the digital file being monetarily exchanged. Alongside cryptocurrencies, which also utilize blockchain tech, NFTs have emerged as a booming source for digital art sales. The secure digital authentication of these NFT artworks has allowed for extraordinary sales to occur of what would otherwise be repeatable files – exemplified most recently by the $12 million sale of a piece named Cryptopunk #7523.

            That NFT artworks are selling for such prices might suggest that the burgeoning digital art market is like its physical counterpart, where works are regularly sold for millions. However, questions of value arise when we compare the $12 million sale of an NFT to the less-expensive sale of an Andy Warhol piece in 2019 for $6 million, or to the $15 million paid for a Van Gogh masterpiece earlier this year. It might seem absurd that pieces of simple pixel art sell for more than works of Western masters, by a highly-respected art house such as Sotheby’s nonetheless. This absurdity raises the possibility that art’s monetary value might simply be arbitrary. Clearly, the problems NFTs present to art economics are significant. Given their nature as monetary value tokens attached to artworks with creative value, NFTs within the art-world exemplify the Art Value Paradox in action. With this in mind, we can discuss potential solutions to the NFT challenge in art economics.

            One unappealing solution to the NFT challenge might be to “bite the bullet” regarding the Art Value Paradox. Given that art has creative-cultural value whose link to monetary value is clandestine in origin, the subjective valuation of that cultural value crucial to art’s existence as an economic good might be just that – subjective. On this view, art’s monetary value is essentially arbitrary because of art’s unique status as an economic good. However, this view is unsatisfactory, failing to adequately explain the relationship between the monetary and cultural value of art.

            Another possibility is that the monetary value of art such as NFTs originates in profit-maximization, wherein the price of an NFT rises as a result of manipulation. While such a view has been vulgarly stated in the past, making a point that some art market activity is essentially money-laundering, its application to NFTs is less criminal-adjacent, but similarly cynical. The ownership of NFTs purchased via blockchain tech such as cryptocurrency (which is more valuable monetarily compared to normal units of fiat currency) might inherently demand higher sale prices, contributing to an ever-increasing bubble in the NFT art market itself. This hypothesis might be evidenced by the recent case of a $532 million “sale” of a Cryptopunk NFT which turned out to be a case of manipulation, with the owner buying and reselling the piece to himself.

From this perspective, NFT art’s monetary value is basically unrelated to its artistic cultural-creative value, with the non-fungible token being just that, a token – an object representing an abstract amount of cryptocurrency value, maximized by the buyer and seller based on subjective judgment. However, this cynical view is ultimately unsatisfactory, because reducing artworld economics to cynicism and profit (regardless of the claim’s truth) is unhelpful to studies or explanations of the value of art itself.

            One final view holds that like with physical art, the Art Value Paradox is resolved in the judgments of the art-world as an institution. This view sees the institution of the art-world set and justifies prices in the art market as a cultural-creative authority. Given the digital scarcity of NFT tokens, NFT artworks might derive creative-cultural value from their technological medium’s link to the NFT art-world where monetary value is agreed. This digital scarcity view, linking exchange medium to art medium via shared origins in the institution of the blockchain, might finally present a satisfactory solution to the NFT challenge. It explains how the creative-cultural value of an NFT artwork is translated via its technological medium, to its monetary value as an economic good.

            However, another factor of this digital scarcity view has not yet been considered which proves problematic to its status as a solution to the NFT challenge and Art Value Paradox. That factor, ironically, is the repeatability of the NFT medium itself. A meme commonly shared by critics of NFTs as an art form holds that NFTs’ distribution as valuable unique artworks is offset by their ability to be copied and shared by a simple “right click”. While this method does not share the signifier of value (the blockchain-secured NFT), it still distributes the artwork itself, exchanging it as a digital token.

NFT defenders might reply that this digital replication is no different than possessing a copy of a painting rather than the original artwork. However, digital files, which are by their nature repeatable, are valued as NFTs via their status as secure digital tokens. As artworks themselves, they (minus their status as NFTs) are arguably identical to their copies when reshared in a non-blockchain medium. Furthermore, comparisons to traditional art forms are not apt as there is no “original” copy in the case of digital art. Unlike genuine paintings – singularly created by the artist as the first instancing of a creative idea, digital files are produced in a shareable, repeatable medium. Even if the NFT medium explains the monetary value of an artwork, it doesn’t adequately relate that value to the creative-cultural value of the artwork as an artwork and not a digital token.

Ultimately, this analysis of the NFT challenge to art economics has not yielded promising results. Lacking solutions that aren’t flawed in their understanding of the NFT medium, or unsatisfying in cynical views that reduce the monetary and cultural value, the NFT challenge remains unsolved. However, this is not to say the NFT challenge is settled. As NFTs are still in their infancy as artforms and economic goods, we can be optimistic that future studies will render less-hopeful analyses such as this one obsolete. Art economics, then, will finally unravel one of its central paradoxes.

“The views expressed in this article are the author’s own, and may not reflect the opinions of The St Andrews Economist.”

Image source: https://commons.wikimedia.org/wiki/File:VeKings.png?fbclid=IwAR3gv4P2zS-mF1sr7ERzWLXyF-D2EH4QohJWoAb5DFG6JzNrQ7AA146MJ-o