Duty, Honor, Country – Vintage U.S. Military Insignia

Duty, Honor, Country - Vintage U.S. Military Insignia
This collection of vintage U.S. military insignia is typical of the high quality items still available to militaria enthusiasts today.  The sterling silver pilot’s wings are World War II vintage, while the 10 karat gold-filled Second Lieutenant officer’s bars are from the Vietnam era.  Notice the pleasing, undisturbed patina on the pilot’s wings, which helps confirm that they are genuine vintage insignia and not modern reproductions.

Duty, honor, country.  These are the three timeless words that began five star general Douglas MacArthur’s farewell speech to the graduating West Point class of 1962.  But they are more than just words.  They are core concepts that have governed the motivation and behavior of generations of U.S. fighting forces.  These noble ideas are exquisitely encapsulated in vintage U.S. military insignia – personal items that are rich with both martial history and tradition.

Military insignia are cloth patches or metal pins used to denote rank, affiliation or technical qualification.  They are distinct from medals, like the Purple Heart or Bronze Star, which are awarded based on merit.  This article will exclusively discuss vintage U.S. military insignia that are made from metal, with the term vintage in this case referring to the 1970s or earlier.  These highly desirable pieces of Americana have witnessed the most pivotal moments in 20th century military history, including World War I, World War II, the Korean War, Vietnam and the depths of the Cold War.

Vintage U.S. military insignia were generally worn on a soldier’s lapel, collar or hat and were an integral part of the military uniform.  They were especially prominent on the dress uniform, where the rich warmth of gold and the subtle glint of silver endowed an immaculate, polished appearance.  However these impeccable devices not only complemented a soldier’s image, but also helped instill a deep sense of esprit de corps and sacred obligation.

For most of its existence, the United States did not maintain a large standing army.  Instead the country only fielded a small peacetime force that radically expanded during wartime.  For instance, the U.S. Army was only 98,000 strong in 1914, but quickly ballooned to around 4,000,000 troops just a few years later due to World War I.

It was only during World War II that the U.S. Armed Forces became a permanently large standing force.  This was driven initially by the exigent need to defeat Nazi Germany and Imperial Japan.  After World War II, the rise of communism forced the U.S. military to maintain its wartime footing in order to act as a global counterweight to aggressive Soviet expansion.

The United States Armed Forces has five branches – the Army, Air Force, Marine Corp, Navy and the often overlooked Coast Guard.  The U.S. Air force is the newest of the armed services, having only come into being in 1947.  Before this time, the Air Force did not officially exist.  Instead, the responsibility for military aviation was divided among the U.S. Army, Navy, Marine Corp and Coast Guard.  However, the United States Army Air Forces, or USAAF, was the most prominent of these pre-1947 air units.

Although they are rapidly becoming hot items in the militaria market, most vintage U.S. military insignia weren’t originally that rare.  Millions of men and women served in the U.S. forces over the course of the 20th century and nearly all of them wore insignia of some description.  However, the original ubiquity of vintage U.S. military insignia belies their true scarcity today.

It is estimated that only 558,000 of the 16.1 million Americans who served during World War II are still alive in 2017.  As the veterans of this world-altering conflict have inevitably passed on, many of their military insignia have been accidentally lost or discarded.  Sometimes the children or grandchildren of these veterans, not recognizing the historical value of these remarkable pins, simply threw them in the trash.  And now that veterans from the Korean and Vietnam conflicts are also reaching advanced ages, vintage U.S. military insignia from the 1950s and 1960s are destined to soon become rarer as well.

 

Vintage Sterling Silver U.S. Air Force Insignia for Sale on eBay

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A wide range of materials have been used in vintage U.S. military insignia.  The most common is probably brass or bronze that has been gilt or silver-plated, as appropriate.  Brass has the advantage of being inexpensive and reasonably durable for field service.  Less sturdy materials such as plastic or die cast zinc alloys have also occasionally been used during wartime when copper was in short supply.

Silver-filled and gold-filled metals are fairly common.  Sterling silver was also readily employed, although its prevalence declined precipitously in the late 1960s due to the rising global price of silver.  Very rarely, high-end pins were made from solid karat gold.

Perhaps the most commonly encountered vintage U.S. military insignia is the Honorable Service Lapel Pin, which was given to veterans who had been honorably discharged.  It features a perched eagle within a ring about to take flight – usually rendered in gilt metal.  This pin is colloquially known as the “Ruptured Duck”, ostensibly because the awkward eagle looks more like a misshapen duck than a majestic bird of prey.

The Honorable Service Lapel Pin’s original incarnation was in 1919 as a cloth patch.  It allowed a veteran to continue wearing his military uniform after being discharged – something that was normally strictly forbidden by military regulations.  This was particularly important in the immediate aftermath of World War II, when wartime shortages made civilian clothing difficult to procure.  Most Honorable Service Lapel Pins were made from gilt brass, but plastic, die cast, sterling silver and karat gold examples all exist.

 

Vintage Sterling Silver Ruptured Duck Insignia for Sale on eBay

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One of the most highly coveted of all vintage U.S. military insignia is the U.S. Army parachutist’s badge, also commonly known as “jump wings”.  This pin features a central parachute flanked by two feathered wings – all rendered in oxidized silver.  The design was first created in 1941 as a way to recognize freshly trained U.S. Army paratroopers who had just qualified for this newly invented and highly demanding discipline.

The very first order of 350 jump wings was crafted by the Philadelphia luxury jeweler Bailey, Banks & Biddle.  But over the years, many different private firms have manufactured these unique pins under official government contract.  These pins are usually silver-filled or sterling silver.

There are several variations of the U.S. Army parachutist’s badge.  In 1950, the Senior and Master parachutist’s insignia were authorized.  Both of these pins are identical to the basic U.S. Army parachutist’s badge, except the former has a star on top of the central parachute and the latter has the same star within a wreath.

An unofficial modification that was frequently made to jump wings by many soldiers and vets was the addition of small bronze stars to represent the number of combat jumps conducted.  The maximum number of these “combat jump stars” is always five.  While not originally sanctioned by the U.S. military, this common practice was eventually made official in 1983.  Vintage jump wings with bronze stars are highly desirable in the collecting community, so buyers should beware of fabricated examples.

 

Vintage Sterling Silver U.S. Army Paratrooper Insignia for Sale on eBay

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The U.S. Marine Corp’s Eagle, Globe and Anchor is also a ubiquitous symbol among vintage U.S. military insignia.  While the eagle and fouled (tangled) anchor were used to represent the U.S. Marine Corp since the early 19th century, the current Eagle, Globe and Anchor design was only adopted in 1868.  The Eagle, Globe and Anchor, also known among collectors and Marines as the EGA, consists of a globe showing the western hemisphere with a fouled anchor behind and an American bald eagle surmounting both.

While there was a lot of variation in EGAs through the late 1950s, by the early 1960s they had been standardized.  Since that time, the Eagle, Globe and Anchor for enlisted men has been all gold in color while officers’ EGAs have been all silver except for the anchor and continents on the globe, which are gilt.  Because the number of active Marine Corps members has always been small compared to the other U.S. Armed Forces, their pre-World War II insignia are relatively uncommon.  A detailed, albeit dry, history of the Marine Corp EGA can be found here.

 

Vintage Sterling Silver U.S. Marine Corp Insignia for Sale on eBay

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Another attractive vintage U.S. military insignia that is quite popular with collectors and history buffs is the U.S. Navy’s Submarine Warfare pin.  It shows a central, oncoming submarine flanked on either side by two sea monster-like dolphins.  The Submarine Warfare insignia for officers are gilt while enlisted men’s pins are all silver in color.  Because submarines are a relatively new technology, the U.S. Navy Submarine Warfare pin was only first designed and issued in 1924.  Vintage examples of this desirable pin can be found in silver-plated (or gold-plated) bronze, silver-filled (or gold-filled) and sterling silver (or gold-filled over sterling silver).

It is also quite common to come across officer’s pins while searching for vintage U.S. military insignia.  Although relatively simple in design, these important emblems of rank helped identify officers at a glance.  Below is a list of military officer ranks and their associated insignia.  I’ve included the equivalent U.S. Naval and Coast Guard ranks in parenthesis.  All U.S. military branches – the Army, Air Force, Marine Corp, Navy and Coast Guard – share the same officer’s insignia:

 

  • Second Lieutenant (Ensign) – One vertical gilt bar
  • First Lieutenant (Lieutenant Junior Grade) – One vertical silver bar
  • Captain (Lieutenant) – Two vertical silver bars
  • Major (Lieutenant Commander) – A gilt leaf
  • Lieutenant Colonel (Commander) – A silver leaf
  • Colonel (Captain) – A silver eagle clutching arrows and an olive branch
  • Brigadier General (Rear Admiral – lower half) – One silver star
  • Major General (Rear Admiral – upper half) – Two silver stars
  • Lieutenant General (Vice Admiral) – Three silver stars
  • General (Admiral) – Four silver stars
  • General of the Army (Fleet Admiral) – Five silver stars in a circle

 

It is important to note that the very highest rank of General of the Army or Fleet Admiral has not been conferred on any member of the U.S. Armed Forces since World War II.  As you can imagine, general’s stars are rather rare and highly coveted in the collecting community.  Fakes abound and great caution is urged when looking to purchase these items.  The novice (and perhaps even intermediate-level) vintage U.S. military insignia aficionado would do well to stick to the rank of colonel or lower.

 

Vintage Sterling Silver U.S. Navy Insignia for Sale on eBay

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A huge number of private companies have received official U.S. military contracts for pins over the decades.  In addition, there have been a fair number of “unofficial” suppliers as well, especially for pre-World War II officer’s pins.  As a result, it is not possible to list all of the different makers that one might encounter on vintage U.S. military insignia.

However, there are a handful of companies that manufactured a disproportionately large share of vintage pins.  These include Balfour (often abbreviated LGB), Luxenberg, Amico (American Insignia Co.), Gemsco, H&H (Hilborn & Hamburg) and N.S. Meyer Inc.  The aspiring vintage U.S. military insignia collector should take note that these makers are the most frequently faked too.  I’ve found this militaria site to be a useful reference for legitimate hallmarks.

For the serious connoisseur, the ability to accurately date vintage U.S. military insignia is a requirement.  One of the best ways to do this is via the attachment mechanism on the back of the pin.  The two earliest types of fasteners are the screw back and the pin back.  The screw back fastener employs a threaded post soldered onto the back of the pin which is secured via a (usually) brass retaining nut.  This type of fastener first appeared in the 1890s and persisted until the World War II era.  Likewise the pin back fastener, also known as the jeweler’s pin or safety pin fastener, was also used from the late 19th century straight through to World War II.

During the 1920s a new type of fastener, called the Phinney clutch (after its inventor), pull clutch, or piston clutch came into widespread use.  This fastener used a small, smooth post secured by a mechanical brass clutch.  The Phinney clutch was superior because its modestly-sized, smooth post did not make a large hole in uniforms, unlike the older screw back version.  It was easier to use than the fussy pin back fastener as well.

However, in 1942 the B.A. Ballou Company of Rhode Island made a breakthrough in clutch technology.  They developed the eponymous Ballou clutch, a fastener made entirely out of thin sheets of stamped brass.  It was used on smooth posts, much like a Phinney clutch, except the user squeezed two tabs on either side of the clutch between his thumb and forefinger.  The U.S. military loved the Ballou clutch because it was easy to use, cheap to manufacture and used very little brass during a period of intense wartime demand.  The Ballou clutch rapidly displaced all other fastener types, which are only infrequently encountered after World War II.  The patent on the Ballou clutch expired sometime during the 1950s or 1960s, allowing other firms to manufacture clones after that time.

It should be noted that the clutches of some vintage military insignia have, either accidentally or intentionally, been swapped out over time, making this a fallible dating method.  However, screw back and pin back fasteners are very difficult to alter without leaving tell-tale evidence.  Despite its drawbacks, the fastener type is still a key method for dating vintage U.S. military insignia.

 

Vintage Sterling Silver U.S. Coast Guard Insignia for Sale on eBay

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Another way to date more recent vintage U.S. military insignia is via date codes.  These were alpha-numeric codes assigned to pin manufacturers that had received official military contracts.  Sometime between 1953 and 1960, insignia contractors began using a code consisting of a single letter followed by a single number.  For example, B-1 stood for Balfour.  Around 1965, the code was changed to a single letter followed by double digits.  For instance, M-22 represented N.S. Meyer.  This code system is still in use today.

The U.S. Navy also adopted its own unique code system of a single letter, double digits and the letter “N”.  The navy has used this code from 1974 until the present.  It should be noted that these alpha-numeric codes only applied to official military suppliers; unofficial pin suppliers did not use them.

Quality counts when looking to invest in vintage U.S. military insignia.  You want a damage-free pin with lots of crisp detail and little or no wear.  Does the eagle on your World War II era Ruptured Duck pin look like he just lost a drunken bar fight?  Then walk away and search for another, better example.

I personally believe that vintage U.S. military insignia made from precious metals are substantially more desirable than those that aren’t, all else being equal.  However, most insignia collectors out there right now don’t agree with this assessment.  They largely collect based on era, military branch or type.  But I think that the use of precious metals grants an additional dimension of investability to vintage insignia that does not exist otherwise.

Therefore, I recommend buying solid sterling silver or (admittedly rare) karat gold examples.  Prices for sterling silver vintage U.S. military insignia are hardly any higher right now than similar pieces in brass or silver-filled/gold-filled, but should have greater future return potential.  While I don’t normally like gold-filled antiques or jewelry for investment purposes, I think that sterling silver vintage military pins with gold-filled trim are entirely acceptable.

In fact, a lot of vintage U.S. military insignia are gold filled over sterling silver, which is far superior to normal gold electroplating.  This is sometimes abbreviated as GoS, or gold-on-silver.  Keep in mind that you will have a very hard time finding affordable sterling silver or solid karat gold specimens from before World War II due to their rarity and desirability.  For these earlier eras, any material is acceptable.

 

Vintage Sterling Silver U.S. Army Insignia for Sale on eBay

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It is vital to favor pins that have an even, undisturbed patina.  This will help you avoid specimens that have been harshly cleaned as well as modern reproductions that are sometimes sold as vintage pieces.  It also isn’t uncommon to find new-old-stock, or NOS, insignia from several decades ago in their original retail boxes.  These will nearly always have some patina if they are truly as old as they claim.

Some collectors of vintage U.S. military insignia avoid NOS pins because they want items that were used in active service.  I, however, am indifferent to this preference and believe the final choice is up to the individual collector.

The biggest challenge for the vintage U.S. military insignia aficionado is to avoid fakes, reproductions and fantasy pieces.  This has become more of a problem over the past 10 to 15 years as the militaria collecting niche has absolutely exploded in popularity.  This trend has been partly driven by the passing of the World War II generation and the melancholy realization that the remaining survivors will not be with us for much longer.

Unfortunately, persistently rising militaria prices have induced some unscrupulous profiteers to fabricate, modify or otherwise fake vintage insignia.  Knowledge is the collector’s best defense against being defrauded.  As already noted, don’t purchase a vintage pin that does not have a good, natural patina intact.  Also, make sure that all parts of a pin are period appropriate, including the fastener.  Familiarize yourself with the common manufacturers of the era you are interested in and their hallmarks.  Lastly, buy only from reputable sources; this will help save you money and heartache in the long run.

Pricing for vintage U.S. military insignia can vary considerably depending on the pin’s age, condition, material and type.  Higher-end materials, like sterling silver, command a surprisingly modest premium over more pedestrian metals like brass.  Earlier military insignia, especially pieces from before World War II are especially desirable and expensive.

However, the collector’s market for these martial relics is still in its infancy, resulting in an inefficient market with wildly differing prices for similar pieces.  Pricing can range from an unbelievably low $10 to $20 for a relatively common World War II era sterling silver Ruptured Duck pin to a few hundred for a desirable pair of early Army Air Corps wings.  Only a few of the very rarest specimens exceed $500 in value, giving savvy collectors of modest means a unique opportunity to “buy the best of the best“.

It is shocking how undervalued high quality vintage U.S. military insignia are right now.  This is one of those few categories of antiques where less than $100 is enough to start a meaningful collection.  With a variety of attractive specimens available for around $50, duty, honor and country has never been a better investment.

 

Read more in-depth Antique Sage militaria investment guides here.


Platinum Amazonas PAM-8000 Fountain Pen, Circa 1973

Platinum Amazonas PAM-8000 Fountain Pen, Circa 1973
Photo Credit: stchel2

Platinum Amazonas PAM-8000 Fountain Pen, Circa 1973

Buy It Now Price: $279 (price as of 2018; item no longer available)

Pros:

-Here is a gorgeous Japanese Platinum Amazonas PAM-8000 vintage fountain pen made from exotic brown Suriname toad leather, circa 1973.

-This Platinum Amazonas PAM-8000 fountain pen measures 5.3 inches (13.4 cm) in length when capped and 6.1 inches (15.5 cm) when posted.

–The Platinum Pen Company was founded in Tokyo in 1919 by Shunichi Nakata.  It is one of the “Big 3” Japanese fountain pen makers, along with Pilot and Sailor.  While these companies are not as well known in the West as some other pen manufacturers, they have inspired an intensely loyal following among fountain pen enthusiasts because of their high quality and reasonable prices.

-This is the only pen I’m aware of that has ever been made from the skin of the Suriname toad (pipa pipa), a non-threatened amphibian native to South America.

-This vintage fountain pen was manufactured with great attention to detail.  In addition to the exotic toad leather covering, the pen sports 18 karat gold plated trim and a burgundy plastic section that is only visible when the pen is posted.  Even the jewel ring on the pen cap has a small toad leather insert instead of just a plain metal end.  This underscores the craftsmanship and thought that went into the Platinum Amazonas PAM-8000 fountain pen.

-The Platinum Amazonas PAM-8000 fountain pen debuted exclusively in Japan in 1973 in a range of different colors.  It retailed for ¥8,000 at the time, which was about $30 at prevailing 1973 exchange rates.  This is the equivalent of around $175 in 2018, after adjusting for inflation.

-Unfortunately, the Suriname toad leather proved so troublesome to work with that production of the pens ceased after a single year, rendering them fairly scarce today.

-This Platinum Amazonas PAM-8000 fountain pen comes with its original 18 karat solid gold nib.  Solid karat gold nibs are a hallmark of high quality vintage fountain pens and are a step up from the stainless steel or titanium nibs found on less expensive models.

–Vintage fountain pens are significantly undervalued in today’s market.  I believe this is especially true for pens from Japanese makers, which are often overlooked because relatively few of these pens are found in the West.

-This vintage Platinum Amazonas PAM-8000 pen comes in its original box, with accompanying Japanese language literature.

-Given the excellent condition, superb craftsmanship and unique materials of this Platinum Amazonas PAM-8000 vintage fountain pen, I feel that the $279 buy-it-now price is easily justified.

 

Cons:

-I have read that the Suriname toad leather used on this pen is rather thin and can be somewhat fragile.  If you are looking for a daily writer, I think it would be wise to look elsewhere.  But if you are looking to invest in a magnificent, one-of-a-kind fountain pen for your collection, then this Japanese Platinum Amazonas PAM-8000 is perfect.

-You’ll need to buy a new converter for the pen, which should be quite inexpensive.

 

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Are Antiques the Perfect Financial Legacy for Your Heirs?

Are Antiques the Perfect Financial Legacy for Your Heirs?

As we grow older, most of us eventually come to terms with our own mortality.  One of the fundamental truths linked to this realization is the fact that you can’t take it with you when you die.  As a result, many people are interested in leaving a financial legacy to their heirs.  That can mean bequeathing assets to your children, grandchildren, nieces, nephews, or perhaps just a good friend who was always there for you.

Of course a financial legacy can come in many different forms.  Real estate, like the family home or vacation house, is always a popular option.  Retirement accounts, like traditional and Roth IRAs, can also be given to a beneficiary upon the passing of the owner.  Annuities and life insurance policies are a third possibility for leaving a financial legacy for your loved ones.

And yet, all of these different wealth vehicles have drawbacks when estate planning.  Real estate is inherently cash flow negative unless it is rented out.  This leaves open the possibility that the recipient of an inherited property will be forced into the role of accidental landlord in order to support the maintenance and tax expenses on the property.  In a worst case scenario, your beneficiary may be forced to sell the property, defeating the purpose of bequeathing it in the first place.

Retirement accounts are (usually) cash flow positive, but suffer from complex distribution rules once inherited.  For example, IRA beneficiaries must generally drain the account within 5 years of the death of the original owner.  Alternatively, they can elect to receive regular distributions from the IRA based on their life expectancy.

As you can probably guess, a tax advisor or accountant is almost a necessity when dealing with inherited retirement accounts.  In addition, those accounts will most likely be stuffed full of conventional financial assets like stocks, bonds and mutual funds.  This exposes this type of financial legacy to the unpleasant prospect of an unexpected market crash or economic dislocation.

Annuities and life insurance policies are perhaps the most straightforward way of leaving a financial legacy to your heirs.  Life insurance makes a tax-free, lump-sum payment to your designated beneficiary upon your death, while annuities pay an annual income stream.  But these investment vehicles are only as good as their issuing institutions.  Yes, insurance companies are ostensibly regulated to ensure their financial health, but I would not put a great deal of trust in this fact.

AIG was one of world’s largest insurance companies, but that didn’t stop it from almost collapsing in the financial crisis of 2008-2009.  It was only due to herculean efforts on the part of the U.S. Federal Reserve that AIG was able to survive.  In the end, insurance companies pay policies off from their stock and bond holdings – investments from the same markets that are currently grossly overvalued.

This situation leaves many of us with a conundrum.  On the one hand, we want to give a meaningful gift to our heirs – a financial legacy that will help them achieve their life goals.  But many of the conventional choices available to us are deeply flawed, particularly in light of the financial markets’ extreme valuations.  Are there any financially stable estate planning options that will stand the test of time?

There is a simple answer to this question; antiques may just be the perfect financial legacy for your heirs.  These compact treasures have been coveted by the wealthy and powerful for centuries.  They are often crafted from the very finest materials known to man, including sparkling precious metals, glowing gemstones and lustrous hardwoods.  And perhaps best of all, many fine pieces are available for shockingly modest prices.

Of course, antiques have other estate planning advantages as well.  For instance, because they are physical objects, antiques can help keep less disciplined loved ones from foolishly squandering their inheritance.  This is an omnipresent problem with a traditional inheritance of cash or easily liquidated securities, where the temptation to spend on that new luxury car or fabulous European vacation always beckons.

In addition, most investment quality antiques are incredibly durable.  Regardless of whether it is antique sterling silverware, old designer jewelry or vintage mechanical wristwatches, these items are already 50, 100 or even 200 years old.  If they are properly cared for, there is every chance that they will last a few more centuries.  In fact, it is possible your heirs may eventually bequeath your fine antiques to their own children or grandchildren!

There are a few things you should be aware of before considering antiques as a financial legacy, however.  First, it is important that the item you wish to give an heir is something he or she would be interested in.  Don’t try to leave an expensive Art Deco platinum and diamond ring to your daughter if she only wears costume jewelry.  Likewise, an ancient coin collection would be lost on a grandchild who has no interest in ancient history or numismatics.

It is also vital that you make a list of who gets what.  The last thing you want is for your family members to fight over who inherits your treasured 14 karat gold Waterman Ideal No 552 fountain pen.  Better yet, consider slowly giving away choice pieces to chosen family members while you are still alive.  That way you can be certain that the right person gets the right piece.

Otherwise, it is critical to record your wishes in your will, or attach an addendum to your will listing your prized possessions along with the intended recipient.  It is also wise to keep meticulous records of each antique, so that your heirs understand just how special the items you are giving them are.  Remember, many people will not recognize an outstanding antique by sight alone.  A written catalogue identifying your antiques will help your family understand how special and meaningful your financial legacy really is.

But maybe the best reason to consider using fine antiques in your estate planning is because they are discreet assets.  In today’s digital world, any holdings of conventional financial assets, like stocks, bonds or real estate, should be thought of as public knowledge.  Your stock brokerage firm and its employees know about them.  The securities transfer agent knows about them.  The lawyer who prepared your will knows about them.

Even the government knows about your paper assets, or can find out about them with trivial effort.  Fine art and antiques, on the other hand, are one of the last forms of wealth that are almost completely private.

 

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Why Did the Major Auction Houses Abandon the Art Market’s Low End?

Why Did the Major Auction Houses Abandon the Art Market's Low End?

One of the most troubling art market trends of the last decade has been the stratospheric rise of ultra-expensive artwork while low to mid-priced works languish in obscurity.  A great example of this phenomenon was the November 2017 Christie’s auction of the recently rediscovered Leonardo Da Vinci painting, Salvator Mundi.  This work by that most celebrated of the Old Masters sold for an eye-watering $450.3 million, making it the world’s most expensive piece of art to date.

The bidding for the famous painting started at $100 million and rapidly rose in frenzied competition before finally settling at $400 million almost 20 minutes later.  Now you might well be wondering, if the hammer price for the work was $400, then where did the $450.3 million final price come from?  The answer to that, my friend, is the ultimate topic of this article.

The difference between the hammer price and the final price in an auction is called the buyer’s premium.  The buyer’s premium is effectively a commission paid by the winning bidder to the auction house for its services.  In the case of Leonardo Da Vinci’s Salvator Mundi, the buyer’s premium was a hefty $50.3 million.

Can you imagine it?  Getting paid over $50 million for auctioning a single artwork?  It must be nice work, if you can get it.  And the world’s two major art auction houses, Christie’s and Sotheby’s, get a lot of it.

Of course, Christie’s did incur certain expenses associated with auctioning the Renaissance masterpiece.  They had to pay for insurance, security, photography, authentication and marketing, in addition to the auction itself.  But even so, I’m certain Christie’s made a substantial profit on this particular transaction.  And this really encapsulates the prevailing business strategy of the world’s largest auction houses – conduct sales of the world’s most expensive artworks, charge a hefty buyer’s premium and then profit.

It didn’t used to be this way.  Back in the 1980s and 1990s, both Christie’s and Sotheby’s had divisions dedicated to auctioning art at the lower end of the market.  Christie’s affordable art subsidiary was known as Christie’s East, while Sotheby’s contender was called Sotheby’s Arcade.

Now when I use the term “lower end art” in this context, I am referring to works primarily priced between $1,000 and $5,000.  But I understand if you chafe at the thought that spending several thousand dollars on art is considered “low end”, especially when you can buy some really compelling works for just a few hundred dollars or less.

These “low price” divisions were an attempt by the two largest auction houses to compete for first-time art buyers, interior decorators and amateur art collectors.  These types of people were not lucrative, big-spending customers.  But the auction houses hoped they could one day be cultivated into dedicated art lovers – with budgets to match.

Unfortunately, this enlightened philosophy went out the window when the global economic storm clouds moved in.  Repeated financial crises in 2001 and 2008 hurt the middle class, damaging their ability and willingness to buy art.  Instead of toughing out these poor business conditions for the sake of building long-term relationships, the major auction houses cut and ran.  Christie’s closed its Christie’s East division in 2001, while Sotheby’s quietly wound down its Sotheby’s Arcade operations later on.  Neither company currently accepts any consignment that is estimated to be worth less than $5,000.

But that wasn’t the only move the big auction houses made to distance themselves from the low and mid range of the art market.  They have also engaged in an extensive series of buyer’s premium increases meant to discourage art collectors of more modest means.  These fee increases occurred in 2008, 2011, 2013, 2016 and 2017 for both major auction houses.  Right now, Christie’s and Sotheby’s levy an outrageous 25% buyer’s premium on purchases below $250,000 and $300,000, respectively.

If it seems suspicious to you that Christie’s and Sotheby’s tend to raise their prices in lockstep, you’re not alone.  Both companies were accused of price-fixing by U.S. regulators in the 1990s and ultimately agreed to pay a $512 million fine to settle the allegations.

It is clear that the largest auction houses do not want to be bothered with anything less than the very best and, by extension, most expensive artworks.  I believe there are a few major reasons for this.

First, the capital markets have become incredibly short sighted over the past 20 years.  Corporate CEOs are expected to produce immediate financial results regardless of the business environment.  CEOs who cannot or will not take the steps necessary to create prompt and robust profit growth are quickly ushered from their posts.  This ironclad law of modern business management has been ruthlessly applied to the world of auction houses, even though it is slowly gutting the industry from within.

Next, although the buyer’s premium (expressed as a percentage) declines as the value of an artwork sold at the major auction houses increases, the absolute value of commissions on high priced works is too lucrative to ignore.  The Leonardo Da Vinci Salvator Mundi painting mentioned earlier in the article is a prime example of this situation.  Christie’s and Sotheby’s would much rather make a billion dollars in sales by auctioning a hundred different $10 million paintings than by selling ten thousand paintings at only $100,000 each.

Finally, the increasing economic bifurcation between the middle class and the extravagantly wealthy has meant that the money is in the high end of the art market.  In fact, it is really in the ultra-high end of the market.  Generally, only the very best pieces by the most renowned artists, mostly in the post-World War II and contemporary space, have flourished in this environment.

While I feel that the worm will one day turn on this trend, for now it is inescapable.  The super-rich are buying more outrageously priced (and unconscionably ugly) art these days than ever before.  And it means that, for now at least, the major auction houses are content to ride the wave, even though I suspect they will come to regret their snubbing of the middle class one day.

 

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