The Art of Scarcity

It’s 2019 and news headlines are ablaze over a banana. The banana had a name, “Comedian”, by Maurizio Cattelan, and it was stuck to a wall with duct tape at Miami’s Art Basel for an asking price of $120,000. The arguments levied against the banana were many. The primary one was the fruit had no business moonlighting as art. It had no intrinsic value, said critics. Millions of identical ones line the shelves of supermarkets. Nothing made the banana art except the mere say-so of the art community. It should not be showcased at a premiere art festival, let alone sell for $120,000. That it was soon plucked off the wall and eaten by a provocateur seemed to prove this.

True to its name, “Comedian” highlights the inconsistencies inherent in our ideas about value. The art world is perhaps the industry where the subjective nature of how value is constructed is most perceptibly on display. It is where Impressionist masterpieces and urinals have sold at similar price tags. 

The recent rise in the popularity of NFTs, or non-fungible tokens, has reopened the conversation about what should or shouldn’t have value. The latest installment in this debate arrived last week with a $69 million sale of an NFT by artist Beeple entitled “EVERYDAYS: THE FIRST 5000 DAYS.” Beeple’s work is the most expensive NFT ever sold, and places its creator among the three most highly valued living artists after Jeff Koons and David Hockney.

The sale represents the convergence of two very different industries that have similarly faced criticisms of sky-high valuations disproportionate to their apparent value: art and cryptocurrency. 

In art, one movement after another has proven alien ideas and products initially deemed undeserving of serious appraisal for not conforming to existing tastes have risen to rival their traditional forebears when it comes to monetary and social valuations. While the art world is typically receptive to new ways of thinking and seeing over time, financial institutions do not greet change so warmly.

NFTs share much of the stigma cast by critics on use cases of blockchain technology like bitcoin. Amid bitcoin’s surging popularity, it has faced rampant condemnations of its own lack of “intrinsic value”, a term that verges on the oxymoronic due to the innate subjectivity of how value is formed. 

See also: Marc Hochstein – How Bananas and Mortgages Can Explain the NFT Craze

What does have intrinsic value? Not fiat currency, which consists of pieces of paper the government can print en masse at will. A key concern about fiat currencies like the dollar evokes “Comedian": Bananas have no real fixed supply in the market, so any given banana can’t be worth $120,000. Changes in monetary policy can flood the market with money and drive the strength of a dollar up or down, thereby creating or destroying value. The argument may collapse in art due to its embrace of conceptual experimentation and dramatic irony, but it holds more water in economics.

The same argument about the importance of scarcity in determining an asset’s value underlies the argument for bitcoin and against fiat currencies like the dollar. Bitcoin’s supply, capped at 21 million, retains the unique characteristic of scarcity that is so critical to the legitimacy of an asset’s high valuation. 

Beeple’s “THE FIRST 5000 DAYS” scarcity is created by a position on the blockchain that makes the transfer of the work the cyber equivalent of being carved in stone – the transaction is marked by a unique and immutable digital signature. Many argue Beeple’s work can be viewed in a form identical to the one that cost millions; however, underlying the value of any scarce asset is the knowledge that it, and only it, is the original. We understand this difference in value when it comes to reproductions of the Mona Lisa sold outside the Louvre. Why not of the images we see on Google? 

The rising popularity of NFTs is also an ode to the cultural values of a digital society that is increasingly aware of the fault lines of fiat currency, akin to the way that Andy Warhol portrayed Campbell's soup cans to reflect on modern consumer culture.

As we continue to inspect the systems that we have long taken for granted, we may begin to see the similarities between a piece of paper vested with monetary value and a banana cast as art. Both are comedians in their own right, giving us the opportunity to evaluate the role of conformity and consensus in our conceptions of value.