In ways that are not immediately obvious, today’s overheated art market can help us understand the recent collapse of the overleveraged global economy. Though few have made the connection, developments in the art market have been following the changing investment strategies in financial markets. The global growth in the art market parallels the worldwide spread of finance capitalism. In recent years, the value of art assets has often risen faster than the value of real estate or financial assets.

This growth has, of course, been driven by the exponential increase in wealth among those who benefit most from the new financial system. Each week brings another account of a newly rich hedge-fund manager buying art at a ridiculously inflated price. This preoccupation with “celebrity” collectors, however, obscures a more interesting and important development: The titans of finance capitalism are also transforming the art market through the financialization of art. They manage their art collections in much the same way they manage their portfolios.

Speculative History

Speculating in art is not, of course, new. In one of the most intriguing investment schemes in recent history, Japanese industrialist Ryoei Saito purchased van Gogh’s “Portrait of Dr. Gachet” in 1990 for the then-record price of $82.5 million. Immediately after taking possession of the painting, he secured it in a climate-controlled vault where it remained for seven years. By 1993, Saito’s financial empire had fallen apart. Since his death in 1996, the location and ownership of the painting have remained a mystery.

This investment strategy treats art like any other commodity purchased for speculative purposes. The investment game changes significantly when art is regarded as a financial asset, rather than as a consumer good. Speculators in the art market have recently established hedge funds and private equity funds for the purchase and sale of art. These funds extend the principles of finance capitalism to art. Take the example of mortgages. As we have seen, since the early 1980s, mortgages have been securitized as collateralized mortgage obligations (CMOs) so that they could be bought and resold in secondary and tertiary markets. While the value of these derivatives is supposed to be determined by the value of the underlying asset (the price of the real estate), in a rising market the value of the derivative increases relative to the collateral on which it is based.

With the growing volatility of financial markets, investors attempt to hedge their bets by trading derivatives using different variations of portfolio theory. When mortgages are bundled and tranched, the evaluation of risk has nothing to do with the value of a particular asset but is calculated using mathematical formulae to determine the statistical probability of defaults of the underlying mortgages. With this practice, the derivative drifts farther and farther from its underlying asset until the virtual and the real seem to be completely decoupled.

Some enterprising investors are applying this model to the art market. London financier Philip Hoffman, for example, has established Fine Art Management Services Ltd., which speculates in art rather than stocks. Bloomberg’s Deepak Gopinath explains Hoffman’s strategy: “Melding art and finance, art funds aim to trade Picassos and Rembrandts the way hedge funds trade U.S. Treasuries or gold — and collect hedge-fund-like fees in the process. Hoffman’s Fine Art Fund, for example, charges an annual management fee equal to 2 percent of its assets and takes a 20 percent cut of profits once the fund clears a minimum hurdle.”

Bundling Artworks

This strategy securitizes works of art in the same way that CMOs securitize mortgages. Just as mortgages are bundled and sold as bonds, so works of art are bundled and sold as shares of a hedge fund. In other words, rather than owning an individual work of art, or several works of art, an investor owns an undivided interest in a group of art works. In these schemes, what is important is not the real value of the company, commodity or artwork; what matters is the statistical probability of its price performance within a specified time frame relative to other portfolio holdings. Furthermore, insofar as investors hedge bets by using portfolio theory, the value of any particular work of art is determined by its risk quotient relative to other works of art held by the fund.

Like investors in CMOs, who know nothing about the actual real-estate holdings whose mortgages they own, investors in art hedge and private-equity funds know nothing about the actual artworks in which they are investing. Investors in art funds could conceivably sell their shares, thereby creating secondary and tertiary markets. As trading accelerates, derivatives (fund shares) and underlying assets (works of art) are once again decoupled, creating a quasi-autonomous sphere of circulating signs in which value constantly fluctuates.

This financialization of art is a genuinely new phenomenon that even Andy Warhol could not have predicted. The most prominent representative of the financialization of art isDamien Hirst, who is notable for his creation of works of art specifically designed for new financial markets. A newspaper editorial in 2007 observed that Hirst “has gone from being an artist to being what you might call the manager of the hedge fund of Damien Hirst’s art.” The most ostentatious example of his strategy was the production and marketing of his $100 million diamond-studded skull ironically titled “For the Love of God.”

The financial machinations surrounding the sale of this work were as complex and mysterious as a high-stakes private-equity deal. One year later, Hirst mounted his own sale at Sotheby’s in London at the precise moment that global financial markets were collapsing. Though the sale was an enormous financial success, it is clear that this unlikely event marked the end of a trajectory that had been unfolding since the end of World War II.

Critical Edge

There are, predictably, some critics who argue that Hirst, like Jeff Koons, is, in fact, satirizing or criticizing the market from which he nonetheless profits so handsomely. While this argument is plausible in the case of Warhol, the art of Koons and Hirst, like the critics who promote it, has lost its critical edge.

If each era gets the art it deserves, then the age of finance capitalism deserves the carcass of a rotting shark that no amount of formaldehyde can preserve. “The Physical Impossibility of Death in the Mind of Someone Living” harbors a lesson worth noting: Reality might not be completely virtual after all, and far from impossible, death is unavoidable.

The commodification, corporatization and financialization of art represent the betrayal of principles and values that have guided artists for more than two centuries. The notion of modern art and related ideas of the avant-garde emerged in Germany during the last decade of the 18th century. In the wake of the failure of the French Revolution, idealistic philosophers and romantic poets were forced to reconsider the interrelation of religion, art and politics. When religion and politics failed to realize what many imagined as the kingdom of God on Earth, artists and philosophers fashioned new strategies, which more than two centuries later continue to shape our world.

The commodification, corporatization and financialization of art subvert the artistic mission that the 18th-century German critic Friedrich Schiller memorably described as the desire to transform the world into a work of art. When the artist becomes a commodities trader, corporate executive or hedge-fund manager, criticism gives way to complicity in an economy that absorbs everything designed to resist it. With asset values rising at an unprecedented rate, the market seems to be omnipotent, omniscient and omnipresent. But just at this moment of apparent triumph, the bubble bursts and everything must be re-evaluated. Though profoundly unsettling, the collapse of finance capitalism creates the opportunity for a reassessment of values that extend far beyond money and art.

The crisis of confidence plaguing individuals and institutions is a crisis of faith. We no longer know what to believe or whom to trust. At such a moment, art might seem an unlikely resource to guide reflection and shape action. If, however, God and the imagination are — as Wallace Stevens insisted — one, then perhaps art can create an opening that is the space of hope. Perhaps, by refiguring the spiritual, art can redeem the world.

Art and money have always been inseparable. As Andy warhol declared almost four decades ago,“Business art is the step that comes after Art.” During the past several decades, however, this relationship has been transformed by the appearance of a new form of capitalism: finance capitalism.

In previous forms of capitalism — agricultural, industrial and consumer — people made money by buying and selling labor and material goods; in finance capitalism, by contrast, wealth is created by circulating signs backed by nothing other than other signs. When investment becomes more speculative, the rate of circulation accelerates and the floating signifiers, which now constitute wealth, proliferate.

The structure and development of financial markets and the art market mirror each other. As art becomes a progressively abstract play of non-referential signs, so increasingly abstract financial instruments become an autonomous sphere of circulation whose end is nothing other than itself. When the overall economy moves from industrial and consumer capitalism to finance capitalism, art undergoes parallel changes. There are three stages in this process: the commodification of art, the corporatization of art, and the financialization of art.

Virtual Versus Real

At the end of these interrelated trajectories, the real seems to have become virtual and the virtual appears to be real. But just when the circuit seems to be complete, the system implodes and the real returns.

When Warhol proclaimed art to be business and business to be art, he was acknowledging the overwhelming importance of postwar consumer culture. Not only had the center of the art world shifted from Europe to New York, but the U.S. had become the world’s dominant economic and military power. The work of many of the most influential artists of the era both reflected and promoted American values and power at home and abroad. Warhol’s artistic appropriation of the images and icons of consumer culture put on display both the machinations of consumer capitalism and commodification of art that was so vigorously promoted by the burgeoning gallery system.

With increasing economic prosperity, art, whose collection and exhibition had long been limited to the church and aristocracy, became the social marker for individuals aspiring to rise above the middle class. But even Warhol could not have anticipated the explosion of the art market by the turn of the millennium.

According to reliable estimates, by 2006, the private art market had reached $25 billion to $30 billion. Christie’s International and Sotheby’s, the two leading auction houses, reported combined sales of $12 billion, and more than two dozen galleries were doing $100 million in sales annually.

This phenomenal growth in the art market was not limited to the U.S. Global capitalism created a global art market. From 2002 to 2006, this market more than doubled, from $25.3 billion to $54.9 billion. This astonishing growth was fueled by emerging markets in Russia, China, India and the Middle East. The price of individual works escalated as quickly as the purported value of the financial securities with which they were being purchased. In 2006, Ronald Lauder, honorary chairman of the board of the Museum of Modern Art, purchasedGustav Klimt’s “Portrait of Adele Bloch-Bauer I” for $135 million, which at the time was the highest price ever paid for a single painting. One year later, Jeff Koons’s “Hanging Heart” sold at auction for $23.6 million, which was the highest price ever paid for a work by a living artist.

Flower Puppies

Koons is the poster boy for this frenzied commodification of art. What began in Warhol’s Factory in the 1960s ends in Koons’s factory, where his cast of assistants fabricates whatever he imagines. Whether pornographic figurines or cute flower puppies, remarkable craftsmanship characterizes Koons’s art. Just as Warhol, reacting to abstract expressionists, removed hand from work, so Koons further mechanizes the means of production.

There is, however, a critical difference between Warhol and Koons. Neither Koons nor his art gives any hint of the irony and parody that lend Warhol’s art its edge. While Warhol’s work unsettles, Koons’s art is crafted to reassure. Unapologetically embracing banality and freely admitting his ignorance of art history, Koons sounds more like Joel Osteen than Marcel Duchamp: “I realized you don’t have to know anything and I think my work always lets the viewer know that,” he once told a reporter. “I just try to do work that makes people feel good about themselves, their history, and their potential.” What is surprising is how many seemingly intelligent and sophisticated people have been taken in by this erstwhile stockbroker.

Having learned his trade on the floor of commodity exchanges, Koons does not move beyond the commodification of art. His exquisitely crafted works have become precious objects whose worth is measured by their rapidly rising exchange value. The next stage in the development of the art market — the corporatization of art — can be understood in two ways.

First, in the past two decades, many major corporations have appropriated the age-old practice of attempting to increase their prestige by purchasing and displaying art. In many cases, companies hire full- or part-time advisers and consultants to develop their collections. Second, and more interesting, a few enterprising artists have transformed the corporation itself into a work of art.

High and Low

The most interesting example of the corporatization of art is the work of the Japanese artist Takashi Murakami. Like Warhol and Koons, Murakami collapses high and low by appropriating images from popular culture to create oversized sculptures and his signature “Superflat” paintings.

But he has also expanded his artistic practice to create a commercial conglomerate that is functionally indistinguishable from many of today’s media companies, advertising agencies and leading corporations. In 2001, he created Kaikai Kiki Co., which currently employs some 70 people. According to the company website, the goals of this enterprise “include the production and promotion of artwork, the management and support of select young artists, general management of events and projects, and the production and promotion of merchandise.” The products marketed range from more-or-less traditional paintings, sculptures and videos to T-shirts, key chains, mouse pads, cell-phone holders and even $5,000 limited-edition Louis Vuitton handbags. His 2007-2008 exhibition, “© Murakami,” at the Los Angeles Museum of Contemporary Art included a fully operational Louis Vuitton boutique.

Having formed a hybrid of a media corporation, advertising company and a talent agency, Murakami dubbed his for-profit corporation a work of art. One of the primary functions of this novel entity is the organization of a biannual art fair in Tokyo, “GEISAI,” which allows clients (young artists) to exhibit their work for a fee. As the artist and photographer Walead Beshty has observed, “the delirious intricacy of Murakami’s unrepentant entrepreneurialism” is hard not to appreciate. Kaikai Kiki’s “tentacles extend into a network of alliances spanning the entertainment industry, corporate image consultation, toy manufacturing and high fashion — this aside from the production of art objects. His ability to mold productions (and services) to varying scale into an ornate constellation is as mesmerizing as his willingness to almost selflessly dissolve his own business complex.”

Yet Murakami’s corporatization of art does not express the fundamental economic transformation that has taken place since the late 1960s. As financial capitalism expands, the production of tangible goods is increasingly displaced by the invention of intangible products. This is as true in the art market as it is in the stock market.