There are many differences between Art and Finance.

It is generally agreed that art and finance perform different functions in and on people’s lives.

There is sometimes an intentional confusion between these two sectors. It often comes from confusing the products and how they are managed.

Applying certain financial management methods to art is not unreasonable, but there are nevertheless a large number of differences between the two areas. As much has already been written about these issues of convergence or divergence (liquidity, transparency of information, etc.) we will not write an umpteenth article but will focus on two important aspects: the circulation and fungibility of cultural goods.

Following this exposé there will be an obvious conclusion.

First of all, we will give a practical summary based on the two major concepts mentioned above:

As regards fungibility, an art object or collectible of any kind is a special thing which means it will always be distinguishable from any other object. It is a palpable and visible thing. It is a real thing. 

By its very nature, this thing has a story or will have one arising from its author, the method or methods used to make it, where it was made or through its holders, who in fact are only temporary owners.

As regards circulation, the object does circulate but at a slow or very slow pace as its holders change. This is due to the four concepts often expounded by Sotheby's, the 4 Ds of death, debts, divorce, discretion. As an art object or collectible circulates, by definition it has a market as do all other goods. However, it should be remembered that the way in which goods circulate will depend on their nature.

In fact this circulation is one of the fundamental elements that identifies something as an art object or collectible.

In the same way as there is a real estate market, financial market, car market, commodity market, etc., there is an art market.

Goods circulate and the means used to circulate them reflects their nature: transport for most goods, but also deeds when dealing with real estate, or electronically for financial securities.

In addition, art objects circulate slowly at a pace set by the 4 Ds and mostly through a private market. However, securities circulate quickly and only to a minor extent on a private market.

Undeniably on the financial market, products circulate very quickly because the asset is paperless; it is virtual. The product circulates electronically and is priced in a tenth of a second. It would therefore be foolish to think about this timescale in relation to the field of art.

So in terms of the reality and the facts of the matter, confusing the two markets (art and finance) is reductive or indicative of a lack of knowledge.

Finally, we will employ a reductio ad absurdum argument to conclude our consideration of this concept: circulation. Let’s assume that the art object or collectible is real estate, a raw material, a car, and why not a financial product? Then all real estate or automotive players (real estate agents, dealers or other distributors) or even finance players (equity managers or bond managers) are players in the art market.

With this shortcut confusing the various types, we have to keep our heads.

Even so, everyone recognizes that financial products are assets just as buildings, cars, art objects and collectibles are. But everyone also recognizes that things or goods can be of a particular type. So just because banks have an interest in art doesn’t make art the same thing as finance. Banks have been investing in real estate for decades, if not centuries, which doesn’t make real estate a financial product.

The “art” activity in banks is complementary to the "loan" activity because it is about assets.

It is this commonality of being an asset which may cause confusion for some people.

Art objects, just like financial products, add or decrease the value of the assets held by a person or a group of individuals (business). 

Some people would argue that financial products were built on the foundations of real estate. This is true and it would also be true to say that it is possible to think about anything in financial terms and "securitize" it, but the product becomes a derivative of the underlying thing (car, wine, football club… or indeed art object) and is therefore a virtual thing (part of a real thing) whereas an art object or collectible is a real thing.

In addition, an art object or collectible is unique. As we have already said, it is individual and not fungible. However, some people would raise the issue of multiple objects. But once again, we have to remember the importance of the holders or temporary owners; they also add to the characteristic of the object. Some people may feel these few lines are overly abstract, so let’s take an example: several examples of a particular classic car were manufactured and therefore were originally fungible. However through the various owners, the history if they participated in races, these cars are no longer fungible. 

And in fact the same applies to a piece of sculpture; for paintings I would not dare to insult readers by reminding them of particularities of drawing. Finally, when the buyer hands a classic car over to the buyer the exchange is not done electronically; the new owner would probably not be entirely satisfied!

Thus, we have looked at the four aspects of circulation, market, nature of the sector of activity, and the fungibility which differentiate the object: art and finance.

We are interested only in fungibility, a concept well known to lawyers, and circulation, well-known to economists. These two concepts are fundamental to defining the object and its market. They are sufficient.

The conclusion is therefore obvious. The functions of art and finance are tangential and not parallel as their common point is only the fact of being an asset... no more, no less.

Dear readers, Aristotle’s quotation proves itself again and again, "there isn’t just one way of studying things."

Eric Toudy