N’Gunu Tiny is CEO and Chairman of Emerald Group, an international investment company focusing on financial inclusion in the developing world.
If you’re yearning for the days when art wasn’t financially driven, you might be surprised to learn that you’ll need to go back in time by more than seven centuries.
Banking and art have been inextricably linked for centuries, and in fact many financial innovations have been responsible for great moments in art. Perhaps the misplaced assumption that finances and art should be world’s apart lies in the fact that history shows us while bankers have long been enamoured with art, artists have been less enthused by the link.
Where did the symbiotic relationship between banking and art begin?
The idea of art for art’s sake, outside of the grip of capitalism, has grown in very recent years. Some art critics have been vocal about “the brute force of money” (Jed Perl in the New Republic) or the late art critic Robert Hughes’s anger at what he called a “cruddy game for the self-aggrandisement of the rich”.
But this ideal hasn’t existed in centuries – if it ever did! History shows that the link between banking/finance and art goes back a very long way. Hundreds of years ago, the links we see today between art investors, collectors, and dealers, actually have their roots in innovations from the early days of global banking.
We need to go back to Italy between around 1250 and 1400 (a period called the Late Gothic) for the origins of the link between merchant bankers and art. It was during this time that merchant banking was invented by Venetians looking for a way around the strict rules around usury (lending with interest).
Bankers in Venice came up with the idea of letters of credit to replace interest on loans. This tripped up the Church, which was vehemently against usury, and forced them to create their own bankers to deal with ecclesiastical finances. Banking families, such as the Medici, could get richer by lending money using credit letters and contributing to the church through cultural patronage.
This led to banking families paying for immense works of art, such as altarpieces or cathedral basilicas as a sort of ‘penance. They could then go on to expand their banking interests without worrying about the condemnation of the Church. This is actually how the majority of Renaissance art was funded.
From dynastic banking families to consumer trading
Moving into the High Renaissance period, we begin to see the advent of Machiavellian politics becoming linked with banking and art. The Italian bond market was invented, and major banking families could grab oligarchic power over both church and state.
To stay on the right side of the Pope, dynasties like the Medici commissioned a vast number of stunning works of art, including from the likes of Botticelli Da Vinci, Michelangelo and Donatello. They were all bankrolled by bankers throughout their careers.
From there, we see art moving into a more down to earth secular consumer trading class through the 16th and 17th centuries. Trade went global, and in Holland, two major innovations came together to create the Dutch Golden Age. These were the stock exchange and the joint stock company.
The first multinational company in history was the Dutch East India Company, which monopolised the spice trade. This was made tradable on the stock market, creating a new middle class of traders, lawyers and bankers. And these people had money to spend on art.
As they weren’t held back by the constraints of the church or a monarch, these new capitalists began to invest in art, alcohol and tulips. During this time, the likes of Jan Lievens and Rembrandt pledged their paintings as collateral on loans to bankers. In other words, art became currency.
The institutional grip of the salons in Victorian times
Moving into the 18th and 19th centuries, London and Paris became the major hubs for art. This was largely due to the invention of central banking. For example, the Bank of England ushered in the concept of a steady currency through bonds, which helped to fund war, infrastructure and trade.
These bonds also funded significant art institutes, such as the Royal Academy and the Louvre. Monetary stability helped grow the art industry and saw the market become an extension of the state-funded institutions set up specifically for the aristocracy and the wealthy banking class.
However, this took its toll on creativity and led to what art critics consider to be a bland and uninspired period of art history during the time of Queen Victoria. Art needed to break free from the establishment.
This didn’t happen until art dealers moved into an independent artist/dealer model, which is still used today. Therefore, artists were unshackled from institutions controlled by the state and given the opportunity to innovate and develop new styles.
Backed by venture capital from family and friends, whole new art movements emerged, such as the Impressionists and Cubists. This finally ended the whole ethos of the art salon, and the value dropped out of the old model.
Investing in art to make a return
It was French banker Andre Level who transformed art into capital when he crowdfunded money from 12 banker associates to spend on pictures by totally unknown but exciting artists. Artists such as Matisse, Picasso and Gauguin, for example.
This marks the first time art was bought as a pure investment, just to make a return. Ten years later, these paintings were sold in an auction that went on to form the blueprint for the likes of Christie’s and Sotheby’s. The paintings made a 400% return, according to art expert Michael C Fitzgerald.
Also, in the early 20th century, American bankers began to accumulate vast wealth through the concept of the corporate trust. Trustees became massively wealthy, and the likes of Frick, Huntingdon and Morgan became wealthy at a level last seen with the Medici.
These US industrialists went wild in the European art market, and art was traded as capital. Collections sprang up in the US just as Europe fell apart due to the first and second world wars. Most of the collections centred around the Old Masters, and when the wars finally ended, New York became the epicentre of the world of art.
Art as a trusted investment asset in the 21st century
Over the decades that followed, art struggled through challenging social conventions and broadening its conceptual scope into the 1960s and 70s. However, it wasn’t until the 1980s that two more financial innovations once again redefied the world of art.
These are securitisation and leveraged finance, which expanded credit and formed the basis of wealth creation in the forms of private equity firms, investment banks and hedge funds.
Buyers of art evolved into real estate developers and financiers fully versed in credit. This continues today, with art auction houses such as Sotheby’s launching their own financial services division out of necessity.
Art loans are available from the likes of Citi Private Bank and US trust. Private banks and their art divisions manage vast amounts of art loans. It’s a loan backed by a truly unique asset, one with a value that goes far beyond money. Art is not a serviceable asset such as a house; instead, it’s imbued with years (and sometimes centuries) worth of philosophical and sometimes spiritual beliefs.
When capital is released from an art asset, it’s backed by confidence and the link of 700 years of culture and capital.