Art as a Wartime Investment: Conspicuous Consumption and Discretion

The financial underperformance of art as an investment is well documented. In contrast to studies conducted on peace-time periods, this paper shows that the art market in occupied France during WWII significantly outperformed all alternative investments (bonds, equities, as well as currencies exchanged on the black market) other than gold. This suggests that art may be a good hedge against low-probability disasters. The paper further demonstrates that motives to purchase art (consumption and investment) vary over time. In his theoretical model, Mandel (2009) attributes art’s low return to the utility derived from conspicuous consumption. In occupied France during WWII, conspicuous consumption was impossible for artworks deemed “degenerate” by the Nazis. The price evolution of “degenerate” versus “non-degenerate” artworks confirms the importance of conspicuous consumption in artworks’ pricing. Eventually, the paper defines the concept of discretion, the ability to store a large amount of value in small and easily transportable goods. During wartime, illegal activities and the risk of being forced to flee the country increased the interest for discreet assets as shown by the better performance of small (and thus discreet) artworks in comparison to large ones.