Capitalism inherently veers towards a monopolistic and unequal society (ie, capitalists try to own all the means of production). This means that capitalists must understand that their own actions are the biggest risk to the system they love. This is because the labor class will not likely allow a persistent inequality to exist. This can either resolve itself via government action (greater redistribution) or the capitalists can resolve it themselves by ensuring that they aren’t obtaining an excessive surplus of wealth.
Now, the American system of capitalism is an interesting case study here because America is both the most giving country in the world and also runs a system of relatively large redistribution. And yet wealth inequality remains a tremendous problem. So we’re either not giving away enough of our wealth or we don’t have enough redistribution. The capitalists get to decide how to fix this in the end and being a free market kind of capitalist I’d like to think that they (we) will. But last night’s record breaking art auction has me considering that maybe this is a much bigger problem than we think – that perhaps there is a structural problem with the way we value things in our society which reinforces the inequality that is contributing to stagnant growth.
I am stepping into a minefield here projecting my own values on others, but I feel like this is a useful thought exercise. So, Da Vinci’s Salvator Mundi sold for $450MM.¹ That’s nearly half a billion dollars for a painting whose authenticity was in serious question. But think about this – there are a huge number of people in this world who have so much money that they will spend half a billion dollars on a painting that they will very likely hermetically seal and place in a vault. It will provide no value to the economy or even to its owner other than its potential appreciation. It likely won’t even sit on a wall so its owner can enjoy its intended purpose – to be looked at.
This strikes me as very strange. I know, fine art is scarce and valuable because it reflects a beauty across time that is impossible to replicate. I have a great appreciation for art and history. But what do we make of a society that “invests” in pieces of paper that they will throw in a vault when that money could do so much good elsewhere?
The strangest part of this is that investing in very old pieces of paper is not like investing in a corporation. After all, that corporation produces something real and its revenues are the source of a good or service that people find valuable. This painting will literally serve no productive purpose in our society other than to potentially enrich its owner when he/she decides to sell it. This money was exchanged between people who are not contributing to society in any meaningful way other than to enrich themselves without having actually done anything along the way.²
When I heard the news of this painting I was reminded of the old scene in Wall Street when Bud Fox peruses Gordon Gekko’s art collection. Bud Fox scoffs at the art saying it’s “a few thousand dollars down the tubes” when in fact Gekko paid $400K for it. He nearly spits up his champagne when he hears that.
Wall Street, of course, is a story about wealth inequality and a guy who values wealth above all else. And it’s interesting to think that Gekko’s paintings appear to be such a meager amount of money when compared to the whopping sales that we’ve seen in recent years. But it all makes me wonder if there isn’t a structural flaw in the way we value things. How can an unproductive asset be viewed as so valuable and what does that say about the people who value it so highly? Granted, there are lots of unproductive activities and assets that have value, but $450MM for a single piece of paper? That’s $800 for every single homeless person in the USA. That’s free healthcare for a year for 45,000 people. That’s free education at the very best schools in the world for 14,000 kids. You get the point.
I hesitate to tell other people how they should spend their money and how they should value things, but as someone who’s fairly well versed in the realities of a capitalist economy I think we have to have an honest discussion with ourselves and acknowledge that we’re the biggest threat to the system we value because our values are misplaced.
¹ – There’s a sad sort of irony that a painting of Jesus as the “savior of the world”, the same man who kicked the money changers out of his temple and called them thieves, sells for such an exorbitant sum of money.
² I am admittedly generalizing here. There are plenty of organizations, charities and people who invest and give away the returns on those investments in meaningful ways.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.