How can a dead, stuffed shark be worth $12 million? Yes, that's how much Damien Hirst's famous shark — showcased in his artwork "The Physical Impossibility of Death in the Mind of Someone Living" — sold for in 2005. The buyer was a wealthy financier named Steve Cohen.
If you are wondering, price competition has not vanished from the marketplace: Eddie Saunders, a British electrician, caught a shark and displayed it in his shop two years before Mr. Hirst's project hit the market. Mr. Saunders later tried to sell his dead shark for about one-fifth the price, and probably that sum was negotiable downward. The offer received lots of press coverage but no interest on the buying side.
If you think that one inanimate shark is as good as another, your understanding of the art market is, as they say, dead in the water. Mr. Saunders's piece just didn't have the same quality or cachet. (Although Mr. Saunders did claim his shark was more handsome.) Most important, it's not just about the work of art; rather, the value placed on a particular work derives from how it feels to own that art. Most art dealers know that art buying is all about what tier of buyers you aspire to join, about establishing a self-identity and, yes, getting some publicity. The network of galleries and auction houses spends a lot of its time, money, and energy giving artworks just the right image. Remarkably, buyers support the process in the interest of coming out on top, rather than fighting it and trying to get the lower prices.
That process has long been murky to outsiders, but we have a new guide to the exotic world of dead sharks, Brillo boxes, and Jeff Koons puppy sculptures. In "The $12 Million Stuffed Shark: The Curious Economics of Contemporary Art" (Palgrave Macmillan, 272 pages, $24.95), published earlier this year in England, and coming out in America in September, Don Thompson provides the single best guide to both the anthropology and the economics of contemporary art markets. This book is fun and fascinating on just about every page.
And as for that $12 million shark, Mr. Thompson points us to the $500 million-a-year salaries that are common in finance and hedge funds. If that's your income, the $12 million is about five days of your labor. About $20 billion of contemporary art is sold annually, which is comparable to the yearly sales of Nike. In other words, it only sounds like a lot of money.
Maybe, given the caché of owning such a famous piece, the real question is why the Hirst shark didn't go for more, but try economics here, too. One complication involves the cost of storing, maintaining, and insuring the piece, given that the shark is already rotting, the fluid is ultimately unstable, and the container may someday leak. That's more than a few days' worth of headache, even if you delegate the actual legwork to an assistant. In other words, if you are a wealthy buyer, in terms of the foregone value of your time, you may have just spent some more money. And if the work ends up collapsing or being ruined, you look like a fool.
Should we think such purchases are silly or noble? Many people recoil from the contemporary art market as the home of pretension and human foible, but as expensive pursuits go, the art market is a relatively beneficial one. The dead shark cost $12 million to buy but, of course, it didn't cost nearly that much to make. So the production process isn't eating up too many societal resources or causing too much damage to the environment. For the most part, it's money passing back and forth from one set of hands to another, like a game — and, yes, the game is fun for those who have the money to play it. Don't laugh, but we do in fact need some means of determining which of the rich people are the cool ones, and the art market surely serves that end.
Most accomplished works of art end up in museums and are eventually accessible to the public; Mr. Hirst's shark last fall went on view at New York's Metropolitan Museum of Art for a three-year visit. Someday, if past behavior of major collectors is any guide, a permanent donation will likely follow. The associated tax deduction drains the Treasury, but this process is cheaper than having our government spend more on direct support of the arts, as is the case in Western Europe. It's a good deal all around.
If you're wondering why there's such a boom in contemporary art today, that's because of competition, too. It's no longer possible to put together a world-class collection of Rembrandts or Botticellis; in fact, it can be hard to find a good one at all, at any price. But if you love contemporary art, or at least think you do, you can scale the heights of the market and leave your mark on the world as a collector. Today's richest got to where they are by having this emphasis on reaching no. 1; we should expect that same psychology to carry over to the art market. If the price is having to buy a stuffed shark rather than a shining Madonna, so be it; the world is growing more secular anyway.
From this book, you'll also learn how to bid at an auction (inexperienced buyers start too soon in the process), how auctioneers entertain a crowd (they count on the non-buyers to keep the buyers interested), and why art critics don't matter much anymore. If the magazine Art in America pays $200 for a review article, why listen to that writer? We have a much richer and generally more accessible guide to the value of art — namely the market itself.
So do you think that the art market might take a tumble, now that the rest of the economy is sliding into recession? Probably not. New classes of buyers from Russia and Asia and the Middle East are likely to keep things going. The art market followed the stock market down a bit after the 1987 crash, but we've yet to see the same dip this time around. Just filling the provincial art museums scattered around China, or under construction, will employ a lot of Western artists for many years.
Willem de Kooning once said of the famed art dealer Leo Castelli: "You could give him two beer cans and he could sell them." Jasper Johns promptly went out and, for Castelli, he painted, sculpted, and created lithographs of two beer cans. These works have since been sold for millions; Mr. Johns's "White Flag" went for $20 million to the Metropolitan Museum of Art. It's been estimated that the "Mona Lisa" — if it ever made its way to the market — might sell for up to $10 billion, arguably to status-hungry official buyers in Qatar, Abu Dhabi, or Dubai.
Damien Hirst is now worth more than Dali, Picasso, and Warhol were at the same age, put together. The point isn't whether, in aesthetic terms, he deserves that compensation. The question is whether this way of organizing the art market makes overall sense. What Mr. Thompson shows us is that, if you really understand human nature, and know just how much wealth is out there, it's hard to imagine things being any other way.
Mr. Cowen is a professor of economics at George Mason University.