WHEN ART BECAME AN ATTRACTIVE INVESTMENT: New evidence on the valuation of artworks in wartime France

by Kim Oosterlinck (Université Libre de Bruxelles)

 

Scene_from_Degenerate_Art_auction,_1938,_works_by_Picasso,_Head_of_a_Woman,_Two_Harlequins
Scene from the Degenerate Artauction, spring 1938, published in a Swiss newspaper; works by Pablo PicassoHead of a Woman (lot 117), Two Harlequins (lot 115). “Paintings from the degenerate art action will now be offered on the international art market. In so doing we hope at least to make some money from this garbage” wrote Joseph Goebbels in his diaries. From Wikipedia

The art market in France during the Nazi occupation provided one of the best available investment opportunities, according to research published in the Economic Journal. Using an original database to recreate an art market price index for the period 1937-1947, his study shows that in a risk-return framework, gold was the only serious alternative to art.

The research indicates that discretion, the inflation-proof character of art, the absence of market intervention and the possibility of reselling works abroad all played a crucial role in the valuation of artworks. Some investors were ready to go to the black market to acquire assets that could easily be resold abroad. But for those who preferred to stay on the side of legality, the art market provided an attractive alternative.

The author notes that the French art market during the occupation has been the subject of numerous publications. But most of these focus on the fate of looted artworks, with limited attention given to the art market itself.

What’s more, previous research on the economics of art usually considers artworks as a poor investment. But the case of occupied France shows that in extreme circumstances, artworks may prove extremely attractive investment vehicles.

During wartime, illegal activities and the risk of being forced to flee the country increased the appeal of ‘discreet assets’ – ones that allow the storage of a large amount of value in small and easily transportable goods.

By comparing the price index for small and large artworks, the new study establishes that investors were looking for smaller artworks, especially just before the German invasion and during the period 1942-1943, when the black market flourished.

Non-pecuniary motives for buying art, such as ‘conspicuous consumption’, are often thought of as playing an important role in art valuation. The new research analyses this point for occupied France by exploiting the distinction made by the Nazis between ‘degenerate’ and ‘non-degenerate’ artworks.

Pricing of ‘degenerate’ works was indeed affected by the impossibility of engaging in their conspicuous consumption. The price difference between these two categories of artworks is clear at the beginning of the occupation, when the Nazi policy towards ‘degenerate’ artworks held in France had not been clearly spelled out.

The difference gradually vanished as it became known that Hitler took a favourable view of French ‘artistic decadence’ and was not planning to get these works destroyed as long as they remained in France.

Discretion does not only concern artworks, the researcher notes. Other discreet assets, such as collectible stamps, also experienced sharp price increases during the Nazi occupation of France. Assets that are easy to transport and hide therefore have characteristics that are valued by some investors during troubled times.

The interest in discreet artworks goes beyond wartime. At any point, tax evaders may be willing to buy art or other discreet assets to hide illicit profits or to diminish their tax burden. As a result, when wealth and wealth inequality increase, so does demand for discreet assets.

Whereas previous research traditionally attributes these price increases to social competition, the new study suggests an alternative explanation: assets that facilitate tax evasion should fetch a higher price in an environment characterised by increasing wealth inequality. The research thus opens the door to a different interpretation of the high demand for artworks in Japan in the 1990s or in China today.

To contact the author: koosterl@ulb.ac.be

THE HEALTH AND HUMAN CAPITAL OF WAR REFUGEES: Evidence from Jewish migrants escaping the Nazis 1940-42

by Matthias Blum (Queen’s University Belfast ) and Claudia Rei (Vanderbilt University)

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At Europe’s doorstep, the current refugee crisis poses considerable challenges to world leaders. Whether refugees are believed beneficial or detrimental to future economic prospects, decisions about them are often based on unverified priors and uninformed opinions.

There is a vast body of scholarly work on the economics of international migration. But when it comes to the sensitive topic of war refugees, we usually learn about the overall numbers of the displaced while knowing next to nothing about the human capital of the displaced populations.

Our study, to be presented at the Economic History Society’s 2017 annual conference in London, contributes to this under-researched, and often hard to document, area of international migration based on a newly constructed dataset of war refugees from Europe to the United States after the outbreak of the Second World War.

We analyse holocaust refugees travelling from Lisbon to New York on steam vessels between 1940 and 1942. Temporarily, the war made Lisbon the last major port of departure when all other options had shut down.

Escaping Europe before 1940 was difficult, but there were still several European ports providing regular passenger traffic to the Americas. The expansion of Nazi Germany in 1940 made emigration increasingly difficult and by 1942, it was nearly impossible for Jews to leave Europe due to mass deportations to concentration camps in the east.

The Lisbon migrants were wartime refugees and offer a valuable insight into the larger body of Jewish migrants who left Europe between the Nazi seizure of power in Germany in January 1933 and the invasion of Poland in September 1939.

The majority of migrants in our dataset were Jews from Germany and Poland, but we identify migrants from 17 countries in Europe. We define as refugees all Jewish passengers as well as their non-Jewish family members travelling with them.

Using individual micro-level evidence, we find that regardless of refugee status all migrants were positively selected – that is, they carried a higher level of health and human capital when compared with the populations in their countries of origin. This pattern is stronger for women than men.

Furthermore, refugees and non-refugees in our sample were no different in terms of skills and income level, but they did differ with respect to the timing of the migration decision. Male refugees were more positively selected if they migrated earlier, whereas women migrating earlier were more positively selected regardless of refugee status.

These findings suggest large losses of human capital in Europe, especially from women, since the Nazi arrival in power seven years before the period we analyse in our data.

The civil war in Syria broke out six years ago in March 2011, making the analysis of the late holocaust refugees all the more relevant. Syrian refugees fleeing war today are not just lucky to escape, they are probably also healthier and coming from a higher social background than average in their home country.

From the FT – Ideas that fed the beast of fascism flourish today

by Mark Mazower
Published on the Financial Times Online, 6 November 2016

The historian Fritz Stern fled the Nazis and helped pioneer the study of German history in the US. Before his death this year, he had been warning for some time of the signs of a resurgent fascism. He was not talking about the land of his birth.

Fascism in the US? The fear is surely overblown. Before we write it off, though, we might ponder what we have learnt about fascism in general, thanks to the work of Stern and others.

In some ways, it is hard to see any parallel between the Weimar Republic or Mussolini’s Italy and the world we live in. No one is calling for a single party state. There are no serried ranks of black- or brownshirts marching through the streets. There are no royalists who will embrace anyone rather than fall into the abyss of Bolshevism. If one thing lay behind the rise of the far right in the 1920s it was the shadow of the Russian Revolution and fear that it would spread. Vladimir Putin’s shadow may be long but it is not that long. Russia is a member of international society in a way that Lenin’s Soviet Union never was.

Read the full article on https://www.ft.com/content/599fbbfc-a412-11e6-8898-79a99e2a4de6

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