In 1943 Abraham Maslow, an American psychologist, published a paper titled "A Theory of Human Motivation". This academic paper laid the foundation for what later became known as Maslow's hierarchy of needs. Most people have heard of this theory which is usually represented as a pyramid with five tiers. The steps of the pyramid in ascending order are as follows:
- Physiological
- Safety
- Love/Belonging
- Esteem
- Self-Actualization
Physiological needs are the biological requirements for food, water, shelter and air. Without these things human life cannot be sustained. This is why they occupy the base of the pyramid. The next tier represents the deep seated desire to feel physically safe. This can mean safety from violence, natural disasters or even economic uncertainty, like the loss of a job. The next level - love and belonging - describes our need to be part of a group and includes friends, family and sexual partners. Esteem represents the desire to be recognized by others as having value, as well as valuing yourself. Finally, self-actualization is the aspiration to realize one's full potential, which is only possible when one has mastered all the previous stages. This final tier may come in the form of any challenging task at which one excels.
Now you might well be asking yourself what the psychologist Abraham Maslow has to do with investing in art and antiques. It is really quite simple. Many critics of the idea of investing in art rightly claim that they produce no periodic cash flows. The stock of a successful company will throw off dividends. Bonds typically make semi-annual interest payments before returning the principal at maturity. But art and antiques do neither of these things, and can only be turned into cash if sold. Some people interpret this fact to mean that art is some sort of Ponzi scheme, forever doomed to boom and bust cycles based on unpredictable fads. Another related accusation is that art has no intrinsic value and is, therefore, valueless.
However, these arguments are false and Maslow's hierarchy of needs illustrates why. According to Maslow, once people meet their lower needs, they then naturally attempt to satisfy their higher needs. For many people, these higher needs are met in one way or another by collecting or possessing art. Consider this: many truly wealthy people have art collections of some description, whether it is a basement full of fine vintage wines, a garage packed with gorgeous antique cars or stately mansions lined with paintings by the old masters. This pattern is not unique to the modern age either, but has been a constant since ancient times.
This is because the wealthy, having already fulfilled the lower rungs of Maslow's hierarchy of needs, subsequently move onto esteem and self-actualization. Assembling a collection of fine art brings them recognition from their peers. It displays their high social status and also creates opportunities to meet other well-heeled individuals. Collecting art and antiques also creates a sense of fulfillment because these markets are exceedingly complex. They represent the culmination of thousands of years of human progress and culture distilled into rare objects of great beauty. It takes substantial time and effort to become accomplished in even one area of the art market. This is the antithesis of the modern stock market, where you can look up analyst coverage, financial ratios and technical charts on the internet in a few minutes.
Most people, therefore, naturally gravitate towards art once they reach a certain level of financial sophistication. According to Maslow's hierarchy of needs, as long as financially successful people exist in the world, there will be demand for fine art. In a sense, investment grade art is an inflation-indexed claim on future global GDP. It doesn't matter if that economic growth happens in China, the U.S. or elsewhere; art and antiques will always be a primary destination for the discretionary spending of the well-to-do.
