Art and the Veblen Effect –

Art and the Veblen Effect –

"For The Love of God" by Damien Hirst

"For The Love of God" by Damien Hirst

No, it’s not a typo or a made up word – there is such a thing as a Veblen Effect.  First of all, a Veblen good is basically a type of status symbol that people people purchase because it is expensive and is perceived as an exclusive and luxury item which suggests that they (the purchaser) are wealthy and belong to a high social class. This good is desirable primarily because of it’s cost and the positive effect the item has on people’s perception of the financial and social status of the owner. Therefore, when the cost of a Veblen good declines, the desirability of the good also declines because it is seen as being less exclusive and less representative of wealth and a high social status. Things such as diamonds, expensive luxury cars (Bentley, Rolls Royce) and high end wines are considered to be Veblen goods as is fine art – in particular, contemporary art.

If you think about the contemporary art market during the height of the art market boom, the prices being paid for many of the works by contemporary artists were completely unjustifiable in terms of value for money and the reasons for the rapid increase in price. In my opinion, the best example of the Veblen effect is the work of Damien Hirst whose work appeared top have benefited greatly from the wealthy trophy buyers whose prime motivation was prestige and status. Hirst even hedged his bets by using copious amounts of diamonds to cover the infamous skull and used diamond dust in some of his works. Even if the art wasn’t so great the diamonds are sure to attract those seeking a way of decorating their house with objects that reflect their level of wealth. One could even argue that Hirst was specifically catering for the wealthy trophy hunters by producing works that they would find highly attractive such as the diamond encrusted human skull.

I don’t think that anyone could disagree with me if I was to suggest that the work of Hirst would be less desirable if it decreased in price because that is exactly what we are seeing at the moment. Considering that Hirst was one of the most sought after and desirable artist’s during the peak of the art market boom one would presume that the same would be the case during the market correction. Although there has been a general decrease in the price being paid for works of art across the board there is still plenty of money available and plenty of money being spent on the most desirable works of art. Had the work of Hirst not been able to be classed as a Veblen good then more people would have been snapping up the works currently on the market (regardless of the financial crisis) which can be purchased for considerably less than they they were sold for a year ago. Those discounted works by Hirst that are currently on the market and have been offered for sale over the past month or so are, however, not being snapped up. Now that Hirst isn’t setting various price related records left, right and centre and isn’t appearing in the headlines as the most expensive living artist – the appeal of his work has declined and the gloss is wearing off.

There are plenty of artists whose work could be called a Veblen good but I think Hirst is the best example as he was the most desirable artist at the peak of the art market boom which means that if people weren’t just buying his work as an expensive trophy, he should have continued to be the most desirable artist. And he isn’t.

to be continued…..

**Nicholas Forrest is an art market analyst, art critic and journalist based in Sydney, Australia. He is the founder of, writes the art column for the magazine Antiques and Collectibles for Pleasure and Profit and contributes to many other publications.

4 Responses

  1. Once again it looks like all the speculators and fleeing the scene. Living on Maui I have seen Veblen effect. There were prices that just did not make sense for the value and quality of the art.

  2. I think that the example with Hirst’s diamond skull is not a good one for the Veblen effect, as the cost of production (diamonds, work by Hirst’s assistants) are not too far away from the realized price. For the other Hirst’s (e.g. spot or spin paintings) I am with you – the more expensive they are relative to their production costs, the more desireable they got in the past.

    Coming to the traits of art as a good the effect you describes is tranlated into art being an “giffen” good (rising prices raise demand). Also it can be called “veblen” good, but this is more seldom in economics. To classify art as an economic good I think calling it a “superior” good (demand positively depending on available income) or “merit” good (ownership is regarded as desirable for an individual on the basis of a norm, rather than because of personal consumer preferences) is also correct.

  3. “Things such as diamonds, expensive luxury cars (Bentley, Rolls Royce) and high end wines are considered to be Veblen goods as is fine art – in particular, contemporary art.”

    The usual definition of a Veblen good is a supposed item for which consumers WANT to pay more; in other words consumers prefer the good MORE if it is more expensive. (Because of the display-of-status aspect.) Of course, normally and obviously, economic actors prefer a good to be cheaper.

    Nicholas, expensive wine is probably specifically NOT a good example of a Veblen item:

    The reason being simply that there is a limited amount of bottles of (say) 1990 Chat. Margaux in existence. If high price is caused by “normal” supply factors, that is a “normal” high price, rather than a high price – let’s say – “caused mainly by Veblen effect.”

    With Bentleys, the cars certainly cost much more to make than a similarly sized Ford, so again it is possibly an ambiguous example of Veblen effect.

    Some modern art can be produced at trivial cost and with no limit on the amount produced, so it is a good candidate for a Veblen effect example.

    Some of today’s (laughably) so-called “designer” hand bags are also in that category: actually cheap to produce, and of no real value, but only “valuable because they have a high price and hence serve as a status symbol.”

    (It should be noted that some of the “expensive handbags” actually do cost a lot to produce. But some are “pure Veblen effect” priced!)

  4. howdy…
    I appreciate ‘Veblin’ goods and Veblen goods.
    both have their place in ones cupboard.
    One has inherent obsurdity while the other is just inherently obsurd.
    One has two ‘e’s while the other does not.
    The function of the /e/ in art is a spongie nebulous question mark inside of an ultimatum driving a ‘stratus’. In game shows all vowels must be purchased. this is called the Sajak Effect.

    -O. Veblin.

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