Investing

Intrinsic value is a somewhat controversial topic in the investing world.  For example, I have read a surprising number of investment articles that offhandedly claim that “gold has no intrinsic value.”  I’ve found this viewpoint to be rather odd.  After all, if gold has no intrinsic value, then what in the world does?  Dictionary.com defines the word intrinsic as “belonging to a thing by its very nature.”  This isn’t a bad starting point, but isn’t perhaps as self explanatory as we would prefer it to be.  In any case, what follows are my musings on the meaning of intrinsic value and how it specifically applies to the art and antiques market.

In my opinion, intrinsic value always applies to raw materials that can be recycled or reused.  Metals most obviously fall into this category.  A copper pipe can easily be melted down and fabricated into copper wire or copper roof trim.  But other materials can be reused too, although none can be recycled with as much ease or as little waste as metals.  Wood, for example, can often be salvaged from its original application and, with some processing, be repurposed into flooring, furniture, structural members or any number of other applications.  In fact, there is a thriving industry in reclaiming and reusing old wooden structures like barns or log homes.  Precious stones, too, can be recycled.  In medieval times it was common for a gem to be pried out its original setting and then remounted.  Sometimes the same gem would effortlessly and inevitably don a new, stylistically current setting every century or so, for hundreds of years in a row.  And high quality gems are largely treated the same way today, their settings changing regularly with the whims of fashion.

However, just the mere fact that a material can be recycled does not truly confer intrinsic value in my opinion – at least not when talking about antiques.  For example, both glass and paper can be recycled, but no one really thinks of these materials as possessing intrinsic value.  I think that when talking about antiques there is a minimum monetary value that a recyclable material must attain before it can meaningfully have intrinsic value.  I believe this value – admittedly arbitrarily set – is approximately $1 per pound or $2 per kilogram.  Setting the minimum value bar here grants intrinsic value to the artistically important copper alloys while excluding iron, aluminum, lead and other, more plebeian metals.

So materials in the art world that possess intrinsic value can be broken down into three broad categories.  Please note that the lists of materials I’m going to give here are obviously abbreviated and are not complete or exhaustive in any way.  First are the metals: platinum, gold, silver and the copper alloys.  Then there are gemstones like ruby, emerald, tourmaline, garnet, etc. and decorative stones like jade, agate, malachite and lapis lazuli.  Lastly, I would include fine woods like mahogany, teak, rosewood, walnut and cherry.

When applied to the world of art and antiques, we find that some items naturally have a very high intrinsic value – like a platinum and diamond tiara – while others have little intrinsic value – like a bronze sculpture – and yet others have no intrinsic value at all – like a painting.  Now art or antiques do not have to possess intrinsic value in order to be desirable.  But, by the same token, art often employs the finest materials at hand and these are often blessed with intrinsic value.  All else being equal, a work of art rendered in an intrinsically valuable substance should be more desirable – and hence worth more – than that same work rendered in a common material.  And this should even be the case when prices are adjusted for the market value of the intrinsically valuable material used.

So a sculpture cast in solid gold should be innately more appealing to most collectors that the same sculpture cast in bronze, even if their artistry and workmanship are equal.  The price difference between these twin sculptures of gold and bronze should be more than just the difference between the melt value of their respective metals.  In other words, there should be a premium applied to the price of a work of art or antique produced from intrinsically valuable materials.  Now the size of that premium is very much up for debate.  But regardless of whether you are a connoisseur or an investor, it is prudent to spend some time thinking about intrinsic value and how it potentially impacts your art and antique purchases.

When I was young I used to play an unusual game at my grandparent’s house.  They lived in a stately, old, brick Victorian built in 1912 that was stuffed full of antiques.  I used to go into a room at random and imagine myself going back in time.  My first stop was the year 1950.  Now I would ask myself what items made after 1950 would disappear from the room and what items made before 1950 would remain?  Now, still standing in the same room, I would imagine that I had gone back even further in time to 1900.  What would be left in the room and what would disappear?  I would repeat this process until I had mentally time traveled back to the early 19th century.

This odd little game actually gives surprisingly deep insights into the natural process of physical attrition and how it relates to the antique industry.  Even in my grandparent’s house, which was packed full of antiques of all types and descriptions, the Civil War era (circa 1865) was a watershed.  My grandparents owned many, many post 1860s antiques.  But, if you were to go back in time before 1865, the number of surviving items in a given room dwindled to just a handful.  For example, there may only be a single piece of furniture, a simple stoneware jug and perhaps a pressed glass bowl – all of them pre Civil War era.  Everything else in the room would be post 1865.

These childhood observations have wider implications for the world of antiques.  While items from before the 1860s are truly scarce, even surviving late-Victorian, post-1860s antiques aren’t particularly common.  Time has done its wicked work all too well, scouring the world until only a fragment of our material heritage remains.  This process – the natural attrition of poorly made or low quality objects over time – is known as seasoning.  It strips away the faddish and the banal, leaving only the exceptional and enduring.  And as we move forward in the 21st century, it is increasingly apparent that early and mid 20th century items are also gradually but inexorably being winnowed by this never ending phenomenon.

All of these experiences lead to some important conclusions for antique investors and collectors alike.  Seasoning only happens slowly, over decades and decades of time.  A substantial amount occurs over the first 50 years of an object’s existence.  This amount of time more or less coincides with the definition of antique, meaning anything considered antique has already been seasoned to some extent.  After the first half century, seasoning progresses more slowly until the process is largely complete around 150 or 200 years.  So today, when we examine mid 19th century or earlier antiques, only the best of the best has survived.  Medieval and ancient items, having been seasoned for either hundreds or thousands of years, are rarer yet.  Shockingly few items survive from those periods – almost all of them remarkably durable.

One reason that antiques are often superior investments is precisely because they have been seasoned over almost unimaginable lengths of time.  Inferior items produced from subpar materials like cardboard, cheap base metals and low-quality woods or fabrics have tended to disappear over time.  These “bad” antiques – those that are cheaply-made, nondescript or stylistically average – have a smaller and smaller chance of avoiding the garbage heap as the decades wear on.  Families throw them out when they move or when older family members die.  Or they are destroyed in tragic natural disasters such as fires, floods and tornadoes.  Or they simply rust, mold or turn to dust from age and exposure.

So have confidence when you begin collecting fine antiques with an eye toward investments returns.  Whether perusing 18th century French bronze candelabra or ancient Minoan sealstones, only the finest specimens have survived the destructive effects of centuries of time.  The world will never have more antiques, only less from now until eternity.  This means that when you do buy a fine, century old antique, chances are very good that it will continue to reliably appreciate far into the future.