WHY DOES A ROTHKO COST ANYTHING AT ALL?

As financial markets flounder, auction houses wonder if their big spenders will keep spending. In the current Intelligent Life, Robert Cottrell asks how art-market prices find their level. Here is a note he wrote when pitching the story for publication ...

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I'M PUZZLING over the value of works of art: not so much to marvel at the prices now being paid for trophy paintings, as to wonder how prices are formed at all in the art market, and whether that process has changed in the latest boom. Why $73m for a Rothko--and not $7.3m, or $173m? Damien Hirst, talking to the Financial Times, gave this bravado view:

"I don't see what else you can spend your money on ... If you want to own things, art is a pretty good bet. Buy art, build a museum, put your name on it, let people in for free. That's as close as you can get to immortality ... I love art. It is uplifting. If the choice is between buying another building or a Pollock, I'd go for the Pollock every time."

One eye-catching detail here is that Mr Hirst has, according to the Sunday Times, a personal fortune of $250m. When a living artist knows his works can sell for tens of millions of dollars--which is the case with Jasper Johns, say, if not quite yet with Damien Hirst--how does he respond to that opportunity? And how does a buyer feel about remunerating a living artist so hugely and directly? To buy a work of art is one thing; to make another man rich is somewhat different. It demystifies the process, at least.

I've been reading a book called "The Worth of Art" by a French art journalist called Judith Benhamou-Huet, which is less focused than I'd hoped, but has a couple of interesting quotes. Here's one from a French dealer called Maurice Segora, explaining why, in his experience, it is financiers who collect art and not industrialists (a claim that goes against the American experience):

"Industrialists don't build up great collections. For them, money is not abstract. When you ask them for a million dollars they reply that for the same amount they could build a factory."

Ms Benhamou-Huet herself makes this contention:

"To be an art addict, you ... need a certain amount of moral freedom that enables you to spend lots of time and money on such frivolous-seeming activities. Deep inside every rich man an epic struggle pits this moral freedom against the guilt induced by overvaluing something that is impalpable: art."

There is something here. Would any collector ever put it in similar terms?

I see also some useful tips for assigning relative value to paintings in 'Discover Your Inner Economist', by Tyler Cowen, co-blogger at Marginal Revolution:

1 Landscapes can triple in value when there are horses or figures in the foreground. Evidence of industry usually lowers a picture's value.

2 A still life with flowers is worth more than one with fruit. Roses stand at the top of the flower hierarchy. Chrysanthemums and lupines (seen as working class) stand at the bottom.

3 There is a price hierarchy for animals. Purebred dogs help a picture more than mongrels do. Spaniels are worth more than collies. Racehorses are worth more than carthorses. When it comes to game birds the following rule of thumb holds: the more expensive it is to shoot the bird, the more the bird adds to the value of the painting. A grouse is worth more than a mallard, and the painter should show the animal from the front, not the back.

4 Water adds value to a picture, but only if it is calm. Shipwrecks are a no-no.

5 Round and oval works are extremely unpopular with buyers.

6 An 18th-century Francois Boucher nude sketch of a woman can be worth ten times more than a comparable sketch of a man.

That doesn't tell you anything about absolute values, but it does encourage the thought that some model may yet be constructed for relating the price of art to the price of other goods--and perhaps, therefore, telling us a bit more about what we think we are buying, when we buy a work of art.