Banana Bonanza: The Bizarre Art Market Unraveled

Art prices are determined by the meeting of real or induced scarcity with pure, irrational desire, and nothing is more manipulable than desire.”                                                                                      - Robert Hughes, Art Critic.

In the annals of financial history, certain events stand out as stark reminders of market excess.

One such event is undoubtedly the recent sale of Maurizio Cattelan's "Comedian" at Sotheby's for $6.24 million.

This piece, consisting of a banana duct-taped to a wall, has once again captured the art world's attention - and raised more than a few eyebrows among seasoned investors.

The buyer, cryptocurrency entrepreneur Justin Sun, claims the work represents a "cultural phenomenon."

What's particularly striking about this sale is the ephemeral nature of the artwork itself.

The banana, naturally, is not meant to last.

Instead, the buyer receives a certificate of authenticity and the right to replace the fruit as needed. It's hard to imagine a more perfect example of a depreciating asset.

The intersection of cryptocurrency wealth and the art market is clear as day.

As digital currencies have surged in value, we see more instances of crypto millionaires making splashy purchases in traditional asset classes.

Art as an Investment

Art is not an investment in the conventional sense.

Unlike stocks, bonds, or real estate, art produces no cash flows, dividend yields, or price-to-earnings ratios.

That means there is no way to value it objectively. Art is the purest of speculations.

Still, art can make you a lot of money.

As Henry Clay Frick, art collector and hard-nosed partner of Andrew Carnegie, observed with wide-eyed wonder…

Even during possession, some paintings were seen to increase, sometimes a hundred or a thousandfold, more rapidly than the certificates of the best-managed joint-stock companies.

The Japanese Bubble Economy: Flashy Funny Money

When I first heard the story of the purchase of a banana for $6.24 million, it reminded me of the Japanese art craze of the 1980s.

As a student of financial history, I know that whenever investors start shelling out tens of millions of dollars for art, it never ends well.

Japan was also a story of too much money chasing too few goods and a game of social one-upmanship that ended in a bust.

Throughout the 1980s, Japan’s bubble economy made it a global superpower.

At the time, Japan boasted the most valuable companies in the world.

At one point, the land under the Imperial Palace in Tokyo was worth more than all the real estate in California.

Flush with newfound wealth, Japanese businesspeople in the 1980s began to speculate in art.

My Picasso Trumps Your Van Gogh

Leading auction houses Sotheby’s and Christie’s encouraged Japan’s newfound interest in art.

They brought artwork to Japan. They published memorable catalogs in Japanese. They threw lavish parties before major sales.

Sotheby’s even published its own art market index, which tracked prices across various types of art.

By 1986, Japan had become the most extravagant art market in history.

The Japanese bid previously unheard-of sums for Western art.

Yasuda Fire and Marine Insurance paid a record $39.85 million for Vincent van Gogh’s Sunflowers at a London auction in 1987. (That’s over $100 million in today’s money.)

The art market became even hotter. A flamboyant Japanese property dealer purchased Pablo Picasso's Les Noces de Pierrette—an unfinished painting from the artist's Blue Period—for $51.3 million.

In 1990, Ryoei “Wild Fellow” Saito, chairman of the Daishowa Paper Manufacturing empire, paid over $160 million for the world’s two most expensive paintings: Van Gogh’s Portrait of Dr. Gachet and Pierre-Auguste Renoir’s Au Moulin de la Galette.

By the decade’s end, the prices of French impressionist paintings had risen more than twentyfold over the previous fifteen years.

Art, one saying went, was “real estate that could be hung on the wall.”

One problem was that Japanese art collectors were embarrassingly unsophisticated.

When asked why he had spent more than $300 million on late 19th-century French paintings, money lender Yasumichi Morishita replied, “Impressionist paintings go better with modern decor.”

As Naoki Wakabayashi, author of the book Those Bubble Days, put it, “Japanese buyers bought the junk nobody else wanted. They also often overpaid. Renoir was prolific. A lot of the second-class Renoirs ended up in Japan.”

Few speculators bothered to have the paintings authenticated. As a result, large numbers of forgeries circulated in Japan.

From Boom to Bust

The Japanese art boom peaked in 1990. That year, Japan imported over $4 billion in art, gobbling up half of all impressionist art on the market.

Sure enough, the art market plunged along with Japan’s bubble economy in the early 1990s.

By 1993, impressionist art prices tumbled by more than 50%. As a result, the value of Japan’s art imports fell to $570 million, one-seventh of its peak level.

The most prominent art collectors went bankrupt. Galleries in Tokyo closed in 1994, and creditors carted off paintings.

Some Japanese art dealers were convicted of crimes ranging from tax evasion to racketeering. Many had purchased thousands of paintings with forged valuation papers, which were then used as collateral for new loans to buy more paintings.

Finance companies wanted to avoid realizing losses by selling paintings at lower prices. So, instead, they created the masterworks and stored them away from the public eye. As a result, many famous works simply disappeared.

What of the "Comedian"?

Justin Sun, the proud owner of a $6.24 million banana, says it represents a "cultural phenomenon."

What bunk.

I think that it represents delusion with a dose of hubris.

Sun’s purchase of a banana was a financial flex.

Sun bought the banana to show us he could.

But do we care?

I didn’t think so.