Record Leonardo sale not a market indicator

Economist Friedrich Hayek wrote that “price contains information.”

So what information is contained in the almost half-billion-dollar price for a painting?

The “last da Vinci,” as “Salvator Mundi” has been called, sold at auction last month for $450 million, blowing past the previous high of $179 million paid at auction for Picasso’s “Les Femmes d’Algers” in 2015.

But before we debate just what this does mean, let’s dispatch with what is does not: This isn’t a sign of a bubble economy or a top in equities. A single outlier transaction is merely an anecdote, and not a market. Anecdotes tell us what a tiny subset of investors is doing with their money; it doesn’t measure the emotional state of the crowd.

Still, I spent some time mulling over what this transaction could mean. I came up with a few ideas and theories.

Scarcity: Consider what comes up for auction on the art market. Modern artists (Picasso, Rothko, Warhol, Basquiat, etc.) are staples of the auction world. Impressionists (Monet, Manet, Degas, Renoir, Pissarro, Sisley, et al.) come up fairly regularly. Leonardo doesn’t come up all that often for auction — most of his works are in museums. The lack of supply explains a lot. Fewer than 20 of Leonardo’s works have survived. Combine that with the demand by Renaissance collectors or museums or rank-and-file billionaires seeking bragging rights.

Salesmanship: Did this price reflect brilliant hype? Some have made that case rather strongly. Jerry Saltz, art critic for New York magazine, was scathing in his appraisal of the painting before it went up for auction. But he leveled even more vitriol at this particular auction as a price-discovery mechanism, which he characterized as “an irresponsible knowing flimflam that defrauds a mass audience into thinking it is ‘appreciating’ an old master when it’s all smoky spectacle and mirrors.” Art adviser Todd Levin took a more benign view of Christie’s salesmanship. “I have to take my hat off to them,” he told Artnet news. “They have done the most brilliant marketing job with this Leonardo.” Given the very short list of potential buyers, it could be less a case of inefficient markets and more a case of slick retailing.

Wealth disparity: Forget the 1 percent or even the

0.1 percent; you need to be a member of the 0.001 percent to be able to throw around that type of money. Many observers have noted that these vast sums of cash can only come about when there is enormous wealth inequality. The website Artsy observed that a new billionaire is minted in Asia every other day, and “they have a serious appetite for art.”

Psychology: Finally, there are issues of ego and individual investor psychology at play. One could have purchased 10 paintings for $45 million each instead. But as Artnet wrote, “a single $450 million da Vinci simply makes more of a statement to one’s peers than ten $45 million” paintings by anyone else.

Perhaps this one sale tees up the art world for the next record auction. It might even make Congress think twice about passing tax cuts that favor the top 1 percent. But what it doesn’t tell us is much of anything about the health of the economy or whether stocks are fairly priced.