Inside the enormous exhibition hall containing the annual Basel art fair, at the Victoria Miro Gallery booth, a young couple is admiring a small watercolour by Chris Ofili. The painting has already been reserved, at a price which the gallery director shares in a hushed voice. "I'll give you an extra twenty percent," replies the husband. The director looks mortified, excuses himself, and doesn't talk to them again.

That anecdote is from Seven Days in the Art World, Sarah Thornton's observational tour through the places where fine art is produced, valued, marketed, sold and re-sold. She doesn't attempt to offer any overarching theory of art, instead focusing on how the art market actually works. Her degree of access is extraordinarily good, and the book is full of engaging details.

For example, she asked Amy Cappellazzo (at that time a senior staff member at Christie's) what kind of art does well at auction, and received this refreshingly frank summary: blue or red paintings do better than brown ones; glum paintings never do as well as ones which make people feel happy; a male nude doesn't go as well as a buxom female; paintings do better than other media ("collectors get confused and concerned about things that plug in"); and finally, "anything larger than the standard dimension of a Park Avenue elevator cuts out a certain sector of the market".

Throughout the book, Thornton gradually builds up a depiction of what makes the art market unusual. Part of it is the uniqueness of the commodities. "Art is more like real estate than stocks." (This is Cappellazzo again.) "Some Warhols are like studio apartments in midblock buildings with northern exposures, while other Warhols are penthouse properties with 360-degree views. A share of Cisco, however, is always just a share of Cisco." Another unusual aspect is the complicated orbits of gallery owners, collectors, and critics. Gallerists would never sell merely to someone who can pay, instead choosing a collector whose status and good taste will enhance the artwork itself and boost the artist's reputation, reflecting glory back onto the gallery. At art fairs, Thornton witnesses what she calls "hard buys", where collectors emphatically (but tastefully) make the case that they should be allowed to purchase a certain artwork.

It's important to buy art for the right reasons. "Acceptable motives include a love of art and a philanthropic desire to support artists," Thornton reports. On the unacceptable side are speculators, which one gallerist describes as gambling addicts: "They study the form, they read the magazines, they have hunches. We complain, but the art world couldn't function without them." Then there are the trawlers, who are always out there "with a big net, so they don't miss a thing"; and the social climbers, who buy but don't understand. (Or as another gallery owner comments, "The market is demented—unregulated but with loads of pretensions about how we are supposed to behave.")

The book was published in 2012, but researched over a few years just prior to the financial crisis. Many people in the art world were conscious that the boom in their market was unusually strong, and speculated about when it would stop. "I'm feeling bearish," commented one collector. "I've only spent, I don't know, two million dollars since January."

It wouldn't be surprising to learn that the art market tanked in the last few months of 2008, but what happened in the decade since? My guess was that it recovered strongly, because the conditions that produced the initial boom are still in place. Interest rates are low, and likely to remain lower than previous decades; wealth inequality is high across the OECD; economic growth in China and Russia is still generating cash that needs to be discreetly converted into overseas assets; and visual art will steadily become more popular as the population becomes more educated on average. I would have agreed with the anonymous American blowhard quoted in the book: "A bubble misunderstands the economic realities. Only a century ago, no one had a car. Now people have two or three. That's the way it's going with art."

Turns out, he and I were both wrong.

Data source: © ArtPrice.com 

For the last five years or so, the overall price of fine art has been at the same level it was right after the Lehman's collapse. [UPDATE: a previous version of that chart incorrectly labelled it as the ArtPrice 100 Index, not the ArtPrice Global Index.] To check that this wasn't just a peculiarity of the US market, I also looked at Australian data.

Data from Australian Art Sales Digest; note the longer timespan than the US charts.

Those lines aren't directly comparable—the Australian one is just a simple average of sale prices, not a fancy composition-adjusted index like the US version—but the story is similar.

The resurgence in the US index in 2011-14 was due to the Drawing subcategory.

Data source: © ArtPrice.com

That's because of China. After 2010, China became the number one source of demand for the global art market, and the works of classically-trained Chinese artists like Qi Baishi and Fu Baoshi are mostly filed under the rubric of drawings. Apparently Chinese money is disproportionately invested in domestically-produced artworks, which shouldn't be surprising.

Meanwhile, the art produced in the last 50 years has survived the downturn the best, despite the fact that it ran the hottest during the boom.

Data source: © ArtPrice.com

In a postscript to her book, Thornton summarises how the art world has adapted to the end of the boom. Transactions are slower; the power imbalance between dealers and collectors has gone, with "hard buys" now less common; and auctions are no longer like Hollywood dramas, instead unfolding "more like low-budget soap operas". Still, the art market continues on, "murky and inefficient, social and global"—"a complex beast that is mutating all the time".

The pre-GFC art scene may have been a little ridiculous in its snobby pretension about buyers' motives, but at least that had the side effect of giving them an incentive to be part of the public art world. Donating a major work to a museum, or at least loaning it out generously, was a standard way to burnish one's credentials as a serious collector. Today, it seems that the ultra-rich frequently acquire artworks and stash them on private yachts, with no concern at all about how crass it makes them seem. I wonder if we should be hoping for a return to the market conditions of 15 years ago, if only to see billionaires acknowledge a power other than money.


Cover image: Brillo Box (3 cents off) by Andy Warhol (1964), last sold in 2010 for $US 3,050,500 against an estimate of $6ook to $800k, at Christie's.