Artwork and antiques: “priceless’’ but not price-less

The term “priceless” is often used loosely to describe something so valuable that its worth cannot be defined by a simple monetary value, or, in other words, it has an infinite price. However, this is very misleading; just because something is “priceless”, does not mean its value cannot be quantified. In fact, provided certain economic conditions are met, there always exists a quantifiable market price which reflects the current market value even for something considered “priceless” or “irreplaceable”.

Firstly, it is important to distinguish between “price”, which is the amount paid by the buyer and determined by market forces, and “value”, which refers to the usefulness or pleasure derived from the purchase. Buyers won’t buy unless they value it at least as much as the price, and sellers won’t sell unless price is at least as much as how much they value it. Price reflects value since something that is more useful or “valuable” will also have a higher price, but the two are not necessarily equal.

Now take, for instance, da Vinci’s Mona Lisa, which is widely considered an irreplaceable and priceless masterpiece. One would assume, given its “priceless” status, that it would have the highest price tag possible, i.e. the gross world product of $78 trillion. And yet no rational person would believe that it is worth that much. It may even be safe to assume that no one would buy the painting for a thousandth of that amount. However, we can continue lowering the price until we eventually have a willing buyer who values it at least at that price. This particular process is known as a Dutch auction and effectively determines a price for the good.

Auctions are often used to determine market prices, where willingness to pay is revealed via the bidding of buyers. However, this is under the condition of clearly defined property rights and sufficient demand for the good; otherwise the price may be distorted due to doubts around the legal ownership. In the case of artwork and ancient relics, it is often unclear who actually owns them. Is it the museum or galleries that house them; or the donors that made the acquisition possible; or does it belong to the local government? This uncertainty makes it difficult to determine who has the authority to make the decisions when it comes to pricing and selling the artwork, as well as the question of who is the recipient of the payment. All this can move the realisation price away from its fair market price.

On the other hand, if ownership is clearly assigned, there would be no question as to who has the legal rights to sell the painting, allowing market forces to determine price, free of any uncertainty. Depicted in the 2015 film, Woman in Gold, Klimt’s Portrait of Adele Bloch-Bauer I is an example of how defining ownership can lead to price determination. Widely regarded as a priceless national treasure in Austria, the painting was subject to lengthy legal battles over the true ownership of the artwork before it was eventually sold for the amount of $135 million.

Another common barrier to setting a price for something described as “priceless” is the lack of an established market where both buyers and sellers are fully informed. This market failure could be due to a number of reasons. On the one end, sellers may not be willing to sell or are unsure of what price to ask for, while on the other end, there may not be any buyers or the willingness to pay is unknown. However, once a market exists, the price will be revealed, usually by an auction.

There is no doubt that the value can be quantified – art appraisers do this, as do insurance companies. Despite this, many still insist that it is not possible nor useful to price the priceless, even though the opposite is true. Artists, curators and art appreciators will have one believe that art and economics are dichotomous. Robert Rosenblum, a curator at the Guggenheim Museum, once stated: “I immediately distrust anybody trying to detect pattern of that sort in art, especially in terms of economics”. To them, the significance of a painting, artefact or relic cannot be measured in monetary terms.

Conversely, economists will argue that the aesthetic and cultural value is, in fact, reflected in the price. This is because prices are related to how much satisfaction is derived from the good or service (also known as ‘utility’ in economics). Utility can be in the form of pleasure, pride, enlightenment or inspiration- all of which are linked to the aesthetic and cultural value of the object.

Moreover, there is a range of practical reasons for pricing such goods. Quantifying a painting’s worth assists museums in making prudent decisions on budget allocation in acquiring new works as well as managing their collection as they are able to compare similar works. In addition, it allows insurance companies to determine how much payment is due if the item was stolen or lost.

So why are people still so uncomfortable with pricing the priceless?

The reason for the general antagonism can be traced down to one word: perception. There is a tendency for people to associate money with selfishness and greed. Consequently, assigning a dollar amount to something that has sentimental or cultural worth is perceived as undermining its sacredness.

Putting price tags on the supposedly “priceless” is both possible and desirable, although the extent to which the price reflects the true value is dependent on the existence of an informed market and clearly defined ownership. Missing demand or supply can prevent a price from being determined while questionable ownership can move the final price away from its true market price. Due to the negative connotations associated with assigning a dollar value to something considered artistically or sentimentally valuable, people often claim such goods are “priceless”.

However, this does not mean a price can’t exist. So the next time you hear something being described as “priceless” or “irreplaceable”, note that only one of the above is true.

2014 estimate by World Bank in US$. Available from http://data.worldbank.org/

The realisation price refers to the amount actually received by the seller, while the fair market price refers to the amount determined under perfect market conditions, i.e. fully informed sellers and buyers and defined ownership rights.

Peers, A. (2015). The Remarkable Story of the “Viennese Mona Lisa” and its Recovery from Nazi Hands. Available from http://observer.com/2015/04/the-remarkable-story-of-the-viennese-mona-lisa-and-its-recovery-from-nazi-hands/ [Accessed 21 October 2015]

Galenson, D. (2011). Ages and Prices in the Art Market: Is the New York Times Starting to Get It?

Grampp, W. (1998). Pricing the Priceless. Available from http://faculty.georgetown.edu/irvinem/visualarts/ArtEcon/Grampp-Pricing_the_Priceless-chap1.pdf. [Accessed 8 July 2015]