The French art market during the Occupation has been the subject of numerous publications that mostly focused on the fate of looted artworks, with limited attention given to the art market itself

Oosterlinck, Kim

LSE Research Online

The	French	art	market	under	the	Nazi	boot:	looking	fordiscreet	assetsThe	French	art	market	during	the	Occupation	has	been	the	subject	of	numerous	publications	that	mostly	focused	onthe	fate	of	looted	artworks,	with	limited	attention	given	to	the	art	market	itself.Using	an	original	database	of	paintings	sold	at	Hôtel	Drouot,	the	main	French	auction	house	at	the	time,	I	recreate	anart	market	price	index	for	the	period	1937-1947.	The	index	shows	that	the	art	market	in	Occupied	France	providedone	of	the	best	available	investment	opportunities.	Whereas	the	literature	usually	considers	artworks	as	a	poorinvestment,	the	case	of	occupied	France	shows	that	in	extreme	circumstances,	artworks	may	prove	extremelyattractive	investment	vehicles.	Indeed,	during	the	Occupation,	and	if	one	relies	on	a	traditional	risk-return	framework,gold	was	the	only	serious	alternative	to	art.	How	can	this	observation	be	explained?To	understand	the	performance	of	the	art	market	during	World	War	II,	several	elements	need	to	be	considered.Following	the	defeat	of	June	1940,	France	was	forced	to	pay	huge	occupation	costs	to	Germany.	As	a	result,	theGerman	occupation	forces	had	almost	unlimited	means	and	quickly	became	major	actors	on	the	art	market.	But	theywere	certainly	not	the	only	ones!	The	payment	of	these	occupation	costs,	and	this	is	crucial	for	our	case,	also	forcedthe	Vichy	government	to	rely	on	the	printing	press	to	pay	its	dues.	To	limit	the	inflationary	pressure	created	by	theseemissions,	the	Vichy	government	devised	the	so-called	policy	of	the	circuit:	a	policy	which	would	try	to	develop	amarket	for	government	bonds	to	soak	excess	money	in	circulation.Fixed	income	securities	are	however	hardly	appealing	in	an	inflationary	environment	and	the	regime	thereforeengaged	into	what	nowadays	would	be	considered	as	financial	repression	to	“convince”	investors	to	buy	thesebonds.	For	example	the	regime	imposed	measures	to	render	sovereign	bonds	more	attractive	than	equities.Dividends	were	limited,	price	increases	capped	and	a	control	of	ownership	of	stocks	was	devised	when	investorswere	forced	to	switch	to	nominative	securities	from	bearer	instruments.	At	the	same	time,	most	real	goods	becamesubject	to	rationing	and	thus	hard	to	buy.LSE Business Review: The French art market under the Nazi boot: looking for discreet assets Page 1 of 3		Date originally posted: 2018-01-11Permalink: http://blogs.lse.ac.uk/businessreview/2018/01/11/the-french-art-market-under-the-nazi-boot-looking-for-discreet-assets/Blog homepage: http://blogs.lse.ac.uk/businessreview/Even	though	for	a	vast	majority	of	the	population	survival	was	the	main	goal,	some	actors	were	worried	aboutinvestment	opportunities.	In	this	context,	artworks,	and	more	generally	discreet	assets	(small	and	easily	transportableassets	that	can	store	a	large	amount	of	value)	became	extremely	valuable.	In	comparison	to	peace	time,	the	ability	tohide	or	transport	wealth	became	crucial	in	occupied	Paris.	Characteristics	of	paintings,	but	also	of	precious	stones,meant	they	could	address	both	issues.	Legality	was	another	concern	for	investors.	By	law	it	was	impossible	to	investin	gold	or	foreign	currencies.	Despite	this,	some	investors	were	ready	to	go	to	the	black	market	to	acquire	assets,such	as	gold	or	foreign	currency,	that	could	easily	be	resold	abroad.	For	those	who	preferred	to	stay	on	the	side	oflegality,	the	art	market	provided	an	attractive	alternative.	Discretion,	the	inflation-proof	character	of	art,	the	absenceof	market	intervention	and	the	possibility	of	reselling	works	abroad	played	a	crucial	role	in	their	valuation.During	wartime,	illegal	activities	and	the	risk	of	being	forced	to	flee	the	country	increased	the	appeal	of	discreetassets.	Contemporaneous	actors,	but	also	the	press	at	the	time,	mention	the	apparition	on	the	art	market	of	peopleenriched	by	black	market	activities.	Anecdotal	evidence	also	suggest	that	small	artworks	were	transported	abroad	forpeople	who	had	to	flee	France.	Even	though	very	different	in	nature,	both	groups	had	an	interest	to	hide	andtransport	value.	But	was	the	demand	for	these	characteristics	important	enough	to	affect	prices?	By	comparing	theprice	index	for	small	and	large	artworks,	I	establish	that	investors	were	looking	for	smaller	artworks,	especially	justbefore	the	German	invasion	and	during	1942-1943,	when	the	black	market	flourished.Non-pecuniary	motives	to	buy	art,	such	as	conspicuous	consumption	are	often	suggested	to	play	an	important	role	inart	valuation.	This	point	is	analysed	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	ofengaging	in	their	conspicuous	consumption.	The	price	difference	between	these	two	categories	of	artworks	is	clearat	the	beginning	of	the	occupation,	when	the	Nazi	policy	towards	‘degenerate’	artworks	held	in	France	had	not	beenclearly	spelled	out.	The	difference	gradually	vanished	as	it	became	known	that	Hitler	took	a	favourable	view	ofFrench	‘artistic	decadence’	and	was	not	planning	to	get	these	works	systematically	destroyed	as	long	as	theyremained	in	France.Discretion	does	not	concern	only	artworks.	Other	discreet	assets,	such	as	collectible	stamps,	also	experienced	sharpprice	increases.	Assets	which	are	easy	to	transport	and	hide	therefore	have	characteristics	that	are	valued	by	someinvestors	during	troubled	times.	The	interest	in	discreet	artworks	goes	beyond	wartime.	At	any	point	in	time,	taxevaders	may	be	willing	to	buy	art	or	other	discreet	assets	to	hide	illicit	profits	or	to	diminish	their	tax	burden.	As	aresult,	when	wealth	and	wealth	inequality	increase,	so	does	demand	for	discreet	assets.	Whereas	the	literaturetraditionally	attributes	these	price	increases	to	social	competition,	this	paper	suggests	an	alternative	explanation:assets	that	facilitate	tax	evasion	should	fetch	a	higher	price	in	an	environment	characterized	by	increasing	wealthinequality.	The	paper	thus	opens	the	door	to	a	different	interpretation	of	the	high	demand	for	artworks	in	the	1990’s	inJapan	or	in	China	nowadays.♣♣♣Notes:This	blog	post	is	based	on	the	authors’	paper	Art	as	a	Wartime	Investment:	Conspicuous	Consumption	andDiscretion,	The	Economic	Journal,	December	2017The	post	gives	the	views	of	its	authors,	not	the	position	of	LSE	Business	Review	or	the	London	School	ofEconomics.Featured	image	credit:	Porträt	von	Wally,	artist	Egon	Schiele		(1890–1918),	by	The	Yorck	Project,	PublicdomainWhen	you	leave	a	comment,	you’re	agreeing	to	our	Comment	Policy.Kim	Oosterlinck	is	a	professor	of	finance	at	the	Université	Libre	de	Bruxelles,	SBS-EM,	and	aresearch	fellow	at	CEPR.	His	research	interests	are	in	financial	and	economic	history,	finance,economics	of	arts	and	culture.		LSE Business Review: The French art market under the Nazi boot: looking for discreet assets Page 2 of 3		Date originally posted: 2018-01-11Permalink: http://blogs.lse.ac.uk/businessreview/2018/01/11/the-french-art-market-under-the-nazi-boot-looking-for-discreet-assets/Blog homepage: http://blogs.lse.ac.uk/businessreview/	LSE Business Review: The French art market under the Nazi boot: looking for discreet assets Page 3 of 3		Date originally posted: 2018-01-11Permalink: http://blogs.lse.ac.uk/businessreview/2018/01/11/the-french-art-market-under-the-nazi-boot-looking-for-discreet-assets/Blog homepage: http://blogs.lse.ac.uk/businessreview/

The French art market under the Nazi boot: looking for discreet assets

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The French art market under the Nazi boot: looking for discreet assets

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