In the middle of September's financial meltdown, a remarkable event occurred in London. While the City of London was shaken by the collapse of Lehman Brothers and the run on HBOS, Sotheby's staged a record-breaking auction for the works of the artist Damien Hirst, which produced a gross take of around $200 million (Dh735.6 million).

Compared to the values that were being destroyed on Wall Street, this was small change; but it was a remarkable vote of confidence in the work of one artist.

Financial bubbles, like the one that has just definitively burst, are intimately related to the world of art. Renaissance Florence depended on the patronage of the Medici. Sixteenth-century Venice turned the wealth of the spice trade into the canvases of Titian and Tintoretto.

The world's next great commercial centre was Amsterdam, where again the successful burghers pushed for a new style of art and produced the age of Rembrandt. The great nineteenth and early twentieth-century financiers, men like J.P. Morgan, Henry Frick and Andrew Mellon, spent a large part of their fortunes on art.

From their viewpoint, collecting art was not simply a matter of benevolence or public spiritedness. Nor was it simply a very expensive hobby. Their galleries showed in a visible and very public way the discernment and judgment that their financial business depended on.

Financial judgment, by contrast, is not by its nature open to inspection. It depends on inside deals, on moving ahead of the market. It is impossible to tell who is making good bets and who is gambling recklessly. Consequently, it is helpful to have a proxy activity that enables outsiders to see that the process of discernment and valuation really occurs.

The recent era of global finance - maybe we can already possibly speak of it as being past - differed from the financial surge of a century ago. Its cultural manifestations also appeared to be novel.

Creative process

To some of its participants, collecting contemporary art showed how finance had become much more of a creative process than it was the world of the older financiers. Morgan or Mellon collected largely old masters from the cinquecento, whose reputation was clearly and solidly established.

The new art collectors, however, were more like the Medici: they were really stimulating new cultural creation. As with their investments, the nature of contemporary art markets relied not purely on their own judgement, but on teams of sophisticated advisers and dealers who could give opinions on what trends best caught the spirit of the age.

Naive outsiders found the world of contemporary art bewildering. Why was a cow preserved in formaldehyde a great cultural achievement? What did the sheets of cloth covered by regularly interspersed coloured dots have to do with artistic innovation or originality?

But was not the same incomprehension on the part of the broad public characteristic of the increasingly sophisticated financial products that were being traded? Indeed, the nature of the risks involved was not clear, it seems, even to regulators or the senior management of the firms that were building the business.

Some modern artists and their patrons explicitly point to the parallel between contemporary art and new financial products. Deutsche Bank, Europe's most prominent art-collecting bank, published the view of academic experts to the effect that customers, the broad public, were "extremely conservative, boring, lack imagination and don't know their own minds."

After financial implosions, such as the collapse of the dot-com bubble in 2000 or the sub-prime meltdown of 2007-08, such views appear arrogant. The parallel between bewildering and apparently meaningless art and unintelligible financial products is damning rather than reassuring.

So why was the Hirst auction such a success? In part, because the art involved was far from being unintelligible. The most eagerly anticipated item, a bull with golden horns and hooves, was entitled, with obvious intent, "The Golden Calf."

But there was also another motive driving the bidders. One hint was that Russian buyers paid the big money, at the very moment that Russia's banking system was melting down. At the same time, there was a surge in demand for gold jewellery. The search for non-financial assets looks like characteristic behaviour in any financial crisis - what was known during the great drama of hyperinflation in Weimar Germany as "die Flucht in die Sachwerte," the flight to material assets.

Art also functions as a store of value. But in order to be sure of the reliability of this function, the purchaser must be convinced of the long-term valuation of the object of desire.

Harold James is Professor of History and International Affairs at the Woodrow Wilson School, Princeton University, and professor of History at the European University Institute, Florence.