There is an enormous, unprecedented, apparently unstoppable but little-reported boom taking place in the art market. In March, at the Armory show, New York's trendsetting contemporary art fair, dealers sold virtually twice as much as they had in 2003 - $43m of art in four days. It is the same story in the auction rooms: contemporary art values rose 20 per cent last year, and the auction houses now make more money from contemporary work than they do from artworks of the mid-20th century or earlier. There are two ways of looking at this. You may conclude that there is now a lot more wonderful art about - and that we are living in a 21st-century version of quattrocento Florence - or you might see this as the art world's own version of the dotcom bubble.
The art market divides into various sectors, defined by the auction houses. In western fine art, the categories are "old masters," which means art of the 19th century and before; "modern," which is 20th-century art until roughly the late 1960s; and "contemporary," which is art made between last week and 40 years ago. Damien Hirst is a contemporary artist, but so are the great German painter Gerhard Richter, English master Francis Bacon and even Andy Warhol. It is a catch-all term which marks a dividing line between the established reputations of the modernists - Cézanne, Picasso, Matisse and so on - and the uncertain values of pop and conceptual art. It is not surprising that as time wears on, the great names of 1960s and 1970s art should leap in value. What is surprising are the vast sums being paid for recently made art.
The contemporary market further subdivides into two sectors - established talents and emerging artists. The entry-level rate nowadays for an oil painting by an emerging artist is £5,000-£15,000. Nevertheless, collectors are buying both emerging and established work by the shedload. In 1999, the work of the German photographer Andreas Gursky, famed for his large-scale vistas of globalisation, rose in value 3,000 per cent. In February 2002, Gursky's image of multiple rows of trainers sold in London for £432,750, making it the most expensive photograph ever taken. In May, a sculpture of a stuffed horse hanging from a ceiling, Ballad of Trotsky (1996), by the fashionable and witty Italian artist Maurizio Cattelan, sold for $2m at auction. It had increased in value tenfold in two years. Gerhard Richter's paintings have quadrupled in value this century alone. His Wolkenstudie, Grün-Blau, which was estimated to be worth between £300,000 and £500,000, sold in 2002 for £1,986,650 ($3,029,820). Richter is particularly interesting as an example of the way work can sell far above estimate, proving, if it were necessary, that a work of art is worth whatever someone is prepared to pay for it. (The sale at a London auction this year of Tracey Emin's My Coffin for £80,000 seems like small fry by comparison, even though that was double its estimated value.)
Overall, the art business is estimated to have a value of around $22bn a year. Collectors buy their art from three sources. There are twice-yearly auctions of contemporary art held by Sotheby's, Christie's and several other auction houses. Here the auctioneer gets a commission worth 20 per cent of the price of the work sold. Then there are the many small private galleries in most major cities. They mark up the works they sell by 50 per cent. But the favourite places to buy art at the moment are the art fairs, notably the Armory show in New York, Art Basel in Switzerland, another Art Basel in Miami, and the new entrant in the field - the Frieze art fair in London, which takes place for the second time in October.
Until recently, Britain was considered a backwater in the world of contemporary art - a nation famed for its parsimony and old-fashioned taste. Now we can boast an art movement, Britart, which - with Damien Hirst, Tracey Emin and the Chapmans as its figureheads - is collected all over the world. In a survey in the French Beaux Art magazine, Hirst was voted the most important living artist by a group of market experts, art valuers and fair directors. For 20 years, Charles Saatchi has been setting trends for contemporary-art buying, and now other British dealers have joined the party. Last year, Frieze became our first major art fair dedicated to contemporary work and so immediate was its impact that this year it will be joined by two newcomers - the Zoo fair and scopeLondon. Superbly organised, Frieze drew galleries and buyers from all over the world. Meanwhile, at the last round of auctions in London, Christie's and Sotheby's broke their record for sales of contemporary art with receipts of £28m.
Once upon a time, art was cheap. In the first decade of the 20th century, dealers like the former boxer Soulier, Clovis Sagot and Berthe Weill bought oils by Picasso, Utrillo and Dufy for 30 francs each. But two decades later the great names of modernism had grown rich through their art, and prices for their work have risen ever since. The current boom in modern art is by no means the first. The last big one took place in the late 1980s. It was based around impressionists and modernists, but was driven by property prices. The taxes on high-value property sales in Japan led to tax-dodging deals in which undervalued property was bundled with expensive art. In America, businesses took advantage of the tax-deductible status of art purchases and formed their own collections or opened their own galleries. Then the stock market crashed, property prices fell, and so did the value of art.
This new boom is different from that of the 1980s. First, it is driven by private collectors, not corporations. Second, its focus is contemporary, not modernist, art. Third, it was precisely when share prices dipped and the dotcom bubble burst that the current art boom took off. The contemporary art market had been expanding in the early 1990s on the back of the dotcom bubble and everyone assumed it would burst with it. Instead, something odd happened: prices for art went up. As art consultant Robin Duthy explains, "The rich were shifting their money out of the stock market and into contemporary art." Today, while stock markets remain uncertain, contemporary art has become, perversely, a reliable investment.
New technology has made it as easy to invest in art as one would in stocks and shares. A number of art market entrepreneurs have developed websites that allow dealers to follow the ups and downs of the market. Sign up for a membership, type in the name of an artist or market sector, and you can see the latest auction prices. David Hoyland, a twentysomething from working-class Bradford who wears sharp Savile Row-ish suits, uses these websites to trade contemporary art like a broker buys and sells commodities. "Take Warhol," he told me. "If you have some money I would say to you, 'I'll buy a Warhol print for you, and I will guarantee to buy it off you in a year for 10 per cent more than you paid for it.'"
"Like the stock market, only prettier," I said. "Yes, but you're more likely to make money," he replied.
The first important British auction of contemporary art was held at Sotheby's in May 1997. The collection of Bernardo Nadal-Ginard was on the block. Nadal-Ginard, a Boston cardiologist, had been buying works considered to be the most "cutting-edge" items in galleries from the mid-1980s to the early 1990s. Such pieces rarely got tested at auction, and it is unlikely that they would have been consigned to such a public marketplace had this not been a forced sale (Nadal-Ginard had been convicted of embezzlement). About 100 works were auctioned, including pieces by Robert Gober, Matthew Barney, Kiki Smith and Jeff Koons. Subsequently Christie's and Sotheby's began holding regular contemporary art auctions - once a year in New York and once a year in London.
You do not have to be an expert to join in. Recently, I came across a trial issue of a magazine called Art Investor, aimed at art market novices. On page 62, there was an article which opened with this declaration: "For love or money - does it always have to be the former? Can't the material aspect play a role too? Yes it can, say the experts. An investment in art does not require a love and passion for the work of art. Art can indeed be a genuine alternative to capital and real estate… art is no longer only related to aesthetics and decoration."
The market has several features which reinforce the upward trend in prices and allow for trading practices that would long ago have been outlawed if they weren't operating under the flag of convenience known as "art" - that uplifting thing to look at that says something about the age in which we live and about the human condition itself.
It is a sellers' market. There are waiting lists not just for established talent but even for emerging artists. Demand far outstrips supply. The seller - the gallery-owner or dealer - is all-powerful. Gallerists don't have to sell the art, they have to decide who not to sell it to. Not any old flash Harry with a cheque-book can saunter in and buy a major work of art from a gallery, whether it is a Damien Hirst, a Takashi Murakami, a Matthew Barney or a Richard Serra. The gallery-owner seeks to place the work of art, which means deciding who is permitted to buy it. The rule is to make sure the work goes to the home of a respected collector or - better - a museum.
If a work of art goes into a good collection, its value and the value of the artist increases. The reverse is equally true, and what the gallerists want to avoid at all costs is someone buying the piece and putting it up for auction to make a profit (known as "flipping"). When this happens on a large scale, it can be a scandal. For example, Hans Grothe, a German property developer, had amassed a large number of photographs by the Düsseldorf school of photographers, which includes Andreas Gursky and Thomas Struth. Grothe had made a verbal agreement with the galleries representing these artists not to sell the work, except to an institution. Two years ago, he broke the promise, the market was flooded with Gurskys and Struths, and the value of their work dipped.
I recently asked the eccentric French gallerist Emmanuel Perrotin (who represents Maurizio Cattelan, Takashi Murakami and others) how I might persuade him to sell me a work by an artist currently in demand. The answer appears to be that, even if I were shockingly rich, I couldn't. "Sometimes it is embarrassing for us when we have 40 collectors waiting on work by an artist," Perrotin said. But if you are a multimillionaire art collector, if you are already a very good client of mine and you have bought many pieces over the years and not just from the artist that everyone wants, if you are a serious collector and if I can use your name to promote the artist again, you will be top of the list. It's not democratic at all. I'm sorry."
The new wealth of gallery-owners and contemporary artists has reinforced their hold on the market. Last November, following the public row between Charles Saatchi and Damien Hirst, Saatchi sold off a large part of his collection of Hirsts. They were bought by Jay Joplin, director of London's White Cube gallery and Damien Hirst's own dealer, for a reported £10m. The logic of the art market means that the collector had a vested interest in selling back to the gallery. Saatchi still owns Hirsts, and even if he didn't, why should he want to flood the market and allow prices to go through the floor? It would make it look like he had made a big mistake. Of course, it is not unusual in the art world for an artist and his gallery to attempt to buy back early work, or indeed to buy works back off a collector. The difference now is the scale. What the boom is doing is empowering a tiny elite of top artists and their galleries to control the sale of their work in an unprecedented way.
An American tax law allows you to donate a work of art to a museum in America and get the full market value of the work back as a tax deduction, up to the value of 30 per cent of your tax bill. This doesn't seem likely to accelerate a boom in contemporary art, because you only get the kickback if you donate. But the attorney Ralph Lerner, author of Art Law: the guide for collectors, investors, dealers and artists, explained to me the benefits of donating: "You buy a work of art for $1,000. Ten years later it is worth $10,000. You donate it to a museum and you get a tax rebate for the full market value of the work of art. That means the government has paid for your work of art, handed you some profit and paid for you to get a new work." But surely, I suggested, this is not as profitable as selling it on the open market. "Yes," Lerner concurred, "but sometimes the full market value is not what you are going to get on the open market. Often, the gallery who sold it to you doesn't want you to put it up for sale at auction. In addition, donations are the route to getting on to the boards of American museums and public art galleries. And getting a seat on one of those boards is the ultimate sign of social standing in America. Many collectors don't need the money, but do want invites to the parties."
The law offers other handy options too. If your work of art is worth much more than 30 per cent of your annual tax bill, you can donate percentages of it each year, up to a maximum of five years. This means that if you have a $15m Picasso, you just give away 20 per cent a year to a museum. The museum exhibits it for 20 per cent of the year, and you get to have it the rest. In addition, exhibiting it in a museum increases its value. If you have a number of works by one young artist, as many collectors do, then it pays to try to place one of those works in a museum, because it increases the value of your other pieces. Depending on how you look at it, this has either turned American museums into the best endowed art institutions in the world, or flooded them with second-rate work that they will ultimately only store in their basements. The British government is now considering introducing the same incentives to donate works of art over here. The director of the Tate, Nicholas Serota, is said to be a key advocate.
Such are the rarified mechanisms of the current market. Yet while they explain how art has become a highly lucrative and specialised investment commodity, they do not explain why. Why this commodity and not another? And why, especially, contemporary work? The art world likes to explain the boom in simple terms. There is less old art around and it is much more expensive. Even among the rich, few can now afford the impressionists. Yet there are many more affluent people who want to buy art of some kind. Contemporary art is available and, as art, it is rewarding
This is the standard line, and it is tosh. Although old masters and impressionists are rare, there is nothing to stop collectors collecting something else - pre-Columbian vases, classic cars, silverware and so on. And while the modernists are expensive, collectors might still prefer to buy their cheaper sketches and prints. But they don't. They do not want old art. They do not necessarily even want great art. They want new art. But why should the idea of the contemporary have become more valuable now, as it were, than it used to be? The answer is that by writing cheques, collectors have acquired a new sense of writing history.
In the old days, gallery-owners marketed their works of art with the claim that they possessed spiritual power. The artist was an impoverished holy man offering deep spiritual truths to all who gazed upon his work. Collectors of contemporary art saw themselves as charitable benefactors looking after poor struggling artists and gaining spiritual sustenance in the process. This old-school approach still motivates a handful of super-rich collectors, such as the Miami Beach entrepreneur Don Rubell and his wife Mera. They own around 5,000 works of contemporary art, the meaning of which they explained to me in almost religious terms: "The art affects one's life to such a degree that it develops a purity inside anyone who stays with it - it's not just decoration. The collectors become purified by the act of collecting art."
Yet, in today's art world, the work is no longer seriously presented as having spiritual power. Rather, it is sold as a piece of cultural history in the process of being made. New York art consultant Thea Westreich put it to me like this: "It's about an intuitive, intellectual, conceptual investigation into what it means to live in a particular time. And our time is enormously complex. Artists are thinking: what does this mean? And how do I express something of the moment?"
New Yorker Adam Lindemann is more typical of the new generation of collectors. He made his fortune with a string of Spanish-language radio stations and now applies the same principle to collecting. I visited him at home, where the walls are crammed with works by the artists that any top collector must have. There were photographs from Matthew Barney's Cremaster cycle, Takashi Murakami's zen manga-cartoons, a bust by Jeff Koons, and Sue Webster's Forever sign, made out of flashing lightbulbs. "They're the greatest hits, you know, like top 20 on the radio station," Lindemann said. "But what's most interesting to me is not so much the work of art as the theories, the personal reactions, and also the market reactions to the artist and to the work. Each object is a piece of contemporary culture; a piece of what's going on."
Collectors Raymond Learsy and Melva Bucksbaum have taken this fascination with the contemporary a step further by making explicit their own participation in it. I visited their stunning Tribeca loft, where they have themed works of art around the subject of 9/11. There was a larger than life bronze of a tumbling woman by Eric Fischl, and a large oil by Jennifer Bartlett of the towers disintegrating in a colourful abstract geometry. "You asked us why we collect contemporary art, and the answer is that it is a reflection of our lives," they told me. "The World Trade Centre is only eight blocks away, and we were here on that day; we saw the towers collapse and collecting contemporary art is our way of dealing with the events of that day."
Learsy and Bucksbaum had responded to catastrophe with connoisseurship. Yet their aim is not just to buy into history, but to anticipate it, collecting artists early in their career. Learsy said: "The exciting thing about collecting contemporary art is that there is no real body of validation. You can become part of the process of validation."
Thus an artist only becomes recognised as important once his or her work becomes seriously collected. By buying a work of art, and raising its price, the collector exerts an influence on history. Books and CDs are also part of cultural history, but anyone can buy the book or the CD. Works of art, on the other hand, are unique or published in very small editions, and collecting contemporary art gives the rich a power that no other purchase confers.
The French sociologist Pierre Bourdieu argued that in western society people trade in cultural capital in a manner analogous to the trade in goods. He meant that we acquire cultural items - a trendy wardrobe, a collection of great CDs - to make ourselves more valuable. Similarly, collectors like Learsy and Bucksbaum are analysing the cultural scene just as financiers analyse the market. They invest in pieces of cultural capital. If their predictions are correct, the works of art become historically significant and go up in value.
What we are experiencing now is a huge growth in the number of wealthy people who want to intervene in cultural history in this way. It is a new world, and one whose lifespan only a fool would dare to predict.
Will the work last and retain its value? Is the art worth the huge sums that are paid for it - between $1m and $3m for a work by Hirst, Warhol, Basquiat, Koons, Cattelan? Are the collectors buying things which will later be regarded as part of our history? Any cultural product is, of course, part of our cultural history. The question is: how significant a part?
On a purely quantifiable basis, we would have to conclude that contemporary art is not as significant as it once was, simply because there are more visual media around to pick from - photography, films, television, video games. These media play a bigger part in our culture than works of art. The art world would counter this by saying that artists are making far more intelligent, even philosophical comments on the world than console designers and television directors. But artists are, on the whole, not particularly well educated, nor is visual art a medium well suited to the examination of complex philosophical or moral problems, which usually require the precision of language. The art world also points to the rising number of people who go to art galleries. But having spent a lot of time in these places listening to other people's conversations, I have the impression that most of them are there out of curiosity rather than intellectual devotion. The contemporary art gallery is the modern version of the freak show, somewhere people go on a rainy afternoon to laugh and gawp. "Oh, is that art now?" they mutter, "I could do that."
The mistaken perception the art world has about the way everyone else perceives their art was exemplified by the fallout from the Momart warehouse fire in May, which destroyed around 100 artworks, many owned by Charles Saatchi, including pieces by Damien Hirst, Sarah Lucas, Tracey Emin and the Chapmans. The press chortled. At last Saatchi's art had got what it deserved. The art world seems to have been taken by surprise by the media's reaction to this disaster. They thought the media were on their side. They thought we liked Britart - after all, we had been reporting on it for more than ten years. The endless column inches devoted to Damien's formaldehyde, Marc Quinn's blood and Tracey Emin's bed allowed the dealers to point to the work's cultural and historical significance, and undoubtedly helped the huge international sales of these artists. But the media followed Britart because it was a good story, not because it was good. The story was about the mysterious art Svengali, Charles Saatchi; it was about foul-mouthed feminists and art that showed children with penises for noses. There was the British success story angle, and then the conflagration in which it all went up in smoke - what a great ending (at least in purely formal narrative terms)! The journalists put no special value on the works of art.
The way the Saatchi fire was talked about shows that the art world's theory of historical significance is wrong, and that soon many collectors will be getting their fingers burnt. If I gaze 30 years into the future I cannot imagine finding Damien Hirst's spin paintings anywhere but car boot sales.
But I may be proved wrong. The contemporary art market is only a market. We live in a world in which the rich have more leisure time and devote more of it to creative tasks. There would probably have to be another major world recession to force collectors to sell their vast collections for less than they paid for them, and that doesn't seem to be imminent. At the moment, the contemporary art market is a self-fulfilling prophecy in which market value and cultural value have dissolved into each other.
