Oscar Wilde once suggested that “Life imitates Art far more than Art imitates Life”, but had he wanted to describe the business of art he would have probably turned to the science of economics.

At face value, it would seem art and economics have very little in common, but upon second glance, the apparently fickle nature of the art market is well explained by economic rationale.

That relationship was highlighted by elusive British street-artist, Banksy, with his bizarre stall stunt in New York’s Central Park late last week.

Original, signed canvasses by the world-famous and yet anonymous graffiti artist (known for his distinctive stencilling technique, satire and subversive epigrams), were sold at a street stall by an elderly man for a fraction of their estimated worth, with Banksy’s permission.

Pieces worth upwards of US$32,000 were flogged-off for a thrifty US$60 – and what a commotion this has caused.

It raised the question of whether contemporary art gains its financial value from little more than the right context and wily marketing. In other words, are prices completely arbitrary?

Economists once believed that the sum of materials and labour alone determined the value of goods. But they have since come to realise that all goods are prone to subjective valuation. Put simply; a Ferrari (or even a pen or a bottle of water), is worth whatever a person thinks it is worth and is willing to pay for it.

The same can be said about works of art. Tastes, fashions and expected gains in future price, all come into play in determining the ‘value’ of art. But it always remains subjective. 

Furthermore, the art market is dominated by a very small number of sellers. This oligopolistic position is pivotal in influencing the high price of art.

The scarcity factor is also crucial. Artists can only produce so much throughout their lives, and scarcity explains why the value of artists’ works tends to increase exponentially after their death.

However, contemporary artists must be continually innovative to ensure long-term value and relevancy in light of volatile trends and fads (I am talking about you Damien Hirst).

By selling a few unassuming pieces at knock-down prices, Banksy effectively generated more demand. The novel performance emphasised the successful retention of his brand-popularity and his work is now more sought after than ever before.

Borrowing liberally from the ever-eloquent Mr Wilde, it would seem that art imitates economics far more than economics imitates art.