Comparative Cantillon effects in the Canadian and Australian art markets

Abstract

As far back as 1755, Richard Cantillon analyzed how changes in the money supply affected relative prices in the economy. In times of monetary infusion, prices of certain types of goods and services could be expected to rise, depending upon the initial distribution of the money and therefore initial spending. Cantillon emphasized the case of new money falling into the hands of wealthy agents, driving up spending on luxuries, such as artworks (as well as financial assets), and causing their relative prices to increase. We present new evidence on the “Cantillon effect” as a potential explanation for movements in the prices of Canadian and Australian paintings since the mid-1970s. We econometrically analyze the relationship between time series of the money supply and art prices in each country. Both countries represent peripheral art markets dominated by domestic private and corporate collectors, and they should thus be more responsive to domestic rather than international economic and monetary conditions. For both markets, we distinguish and separately analyze different tiers of the market, separating the very top from a lower segment. We find that prices for top Canadian artists follow the money supply relatively well over the long term, with a similar but slightly weaker result for the top Australian segment; notably, Australian middlebrow prices move more in line with the Consumer Price Index. These results suggest that national art markets are not homogeneous and that segmenting them for analytical purposes may be useful. Specifically, we find stronger evidence of a Cantillon effect in the upper end of the market, while prices of lower-prestige paintings move more in line with consumer goods prices.