“I don’t know what money means anymore,” said Asher Edelman, an art dealer and founder of ArtAssure, an art financing company, as he exited the Rockefeller Center salesroom halfway through the [recent Christie's] auction.
In early 1990’s Canada, my classmates and I were taught the shortcomings of the USSR’s command economy: a metastatic bureaucracy, the impossibility of perfect knowledge of complex systems, and the disincentivization of hard work. We were hot on the heels of the recently fallen iron curtain, and the curricula developers were quick to incorporate current affairs into our classes. So we discussed it, we wrote tests on it, and then apparently forgot all about it. How do I know we forgot? I know we forgot because today, whenever there’s a problem in the world, those same classmates and meatpuppets just like them say “The government should do something about this!” As if Stalin’s Five Year Plans didn’t starve 7 million Ukrainians between 1932-1933.
But since Canadian Untermensch can vote just as well as land-owning, debt-free, bespectacled fellows such as myself, the government is incentivized to do exactly that: to intervene. Y’know, like in command economies. So that’s exactly what happens.
The long and the short of it is that our currencyi is the most tightly and centrally managed element of our country’s economy. The Bank of Canada, our equivalent of the Federal Reserve or the Bank of England, prints money, bails out banks,ii and diddles interest rates. Since interest rates are effectively zero and, at this exact moment, the banks don’t need any more bailouts, that leaves the BoC to print more or less money. Not surprisingly to anyone with even a passing grasp of politics and history, the incentive is print more… and more… and more… until… *poof*
Because the Earth is finite and dollars decreasingly so, dollars lose their purchasing power when the central bank printing presses run overtime. This lends the appearance of increasing prices of things, but this is a trompe-l’œil: it’s really a case of the decreasing value of dollars. This is what we call “inflation.” I mean, a chicken is worth a chicken, just as a Bitcoin is worth a Bitcoin. These are things, after all. Finite things. And finite things have measurable and predictable value against other finite things. Infinite things may temporarily have value against finite things, but finite things will eventually win.
Until finite things win, as they inevitably do, governments and central banks measure inflation, that is, the rate of the decreasing value of dollars, in obtuse ways and for their own benefit. Since inflation can’t be measured directly, an ever-changing basket of goods and services is used to provide an approximation in what’s called a Consumer Price Index, or CPI. In the UK, for example, out of its CPI basket of 700 items, this year saw the removal of wallpaper paste, hardwood floors, takeout coffee, after-school club fees, and gardeners’ fees, and the addition of Netflix, canvas shoes, rented clothes, plant food, and flavoured milk.iii Basically, expensive shit was replaced with cheap shit.
This is a useful tactic for masking the effect of increasingly worthless dollars, wouldn’t you say? To be sure, this is exactly how inflation is always reported to be in the range of 2-3% no matter what. This narrow range is important because it’s from this that government budgets and benefits are calculated. A narrow inflation range also lends the illusion of control, essential for a command economy. CPI is therefore one of the most central determinants of public policy. And its reporting is more closely managed than almost any other government statistic.
So if we want to break the mold here, and we certainly do, how can we calculate inflation more accurately?
Art, that’s how.
Unlike the CPI’s ever-changing basket of goods, Picasso and Van Gogh are dead and their canvases immutable. There will never be any more Matisses painted, nor Moores sculpted. The art market is also one of the freest markets on the planet, being subject to minimal government intervention via credits, subsidies, and other socialist machinations to muddy the price signal. A work of art, true art, therefore presents a unique opportunity to measure the decreasing value of the dollar over time.
Sure as rain, this brings us back to the quote at the start of this post, where Mr. Edelman is beside himself with this exact phenomenon: Dollars ain’t what they used to be. So let’s measure, together, exactly how much less those dollars are worth. More from Bloomberg:
Gerhard Richter’s 1990 abstract painting “Abstraktes Bild (712)” fetched $29.3 million, 68 percent above its last auction in November 2012 when it sold for $17.4 million.
inflation rate since 2012: 41.5%
Warhol’s silkscreen painting depicting the 1963 race riot in Birmingham, Alabama, sold for $62.8 million to gallery owner Larry Gagosian. It was valued at about $50 million. The almost square canvas, showing the same image four times (on white, blue and red backgrounds), had once belonged to artist Robert Mapplethorpe. It last appeared at auction in 1992, selling for $627,000.
Inflation rate since 1992: 23.2%
Just as two lefts don’t make a right, two samples don’t make a science. Still, art gives us a far better feel for the magnitude of inflation and shows us that the inflation rate is increasing and under-reported. We knew this, of course, now we just have a better idea of how bad it is. And holy mother of fuck is it something else.
And if it weren’t for Bitcoin, there’d be almost no hope.
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- The Canadian Dollar is centrally managed, just like the currency of every other country on the planet save Andorra, Vatican City, Monaco, Bahrain, Oman, UAE, Qatar, Kuwait, Bahamas, Bermuda, and the Cayman Islands. [↩]
- Yes, Mr. Smug Canuck, Canada bailed out its banks to the tune of $114B between 2008-2010. In the cases of Scotiabank, BMO, and CIBC, the size of their respective bailouts met or exceeded the market cap of each respective bank, making the +ev strategy to nationalize the fucking things. [↩]
- Source: lovemoney.com (archived). [↩]