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Pechstein spent a month in Eisenberg-Moritzburg, near Dresden, between mid-July and mid-August 1910. It was here that Horse Fair was painted, probably towards the beginning of his stay. Pechstein had joined his fellow-painters of the Brücke group, Ernst Ludwig Kirchner and Erich Heckel, on an excursion to what were known locally as the "Moritzburg lakes:" shallow stretches of water flanked by reeds and bushes, grouped around the 16th-century hunting lodge of the Elector Moritz of Saxony. The purpose of their expedition was two-fold: to escape the stuffy confines of the city and to find an environment in which, as Kirchner put it, they might grapple with the problem of "turning new resources to the depiction of nude figures in the open air." Moritzburg and its surroundings offered a secluded environment in which the Brücke painters, accompanied by their girl friends and studio models, could disport themselves naked amidst shrubs and shallows, making numerous studies on the Cézannesque theme of bathers in a landscape setting. The tale of his 1910 visit Pechstein tells in his autobiography evokes vividly the atmosphere of sexual freedom, the air of licence and camaraderie that pervaded this summer sojourn by the lakes. He even relates how, on one occasion, he and his companions were caught "with their trousers down" by an uncomprehending and deeply suspicious local policeman.
Pechstein also specifically mentions the horse fair that was held five times a year in Moritzburg itself, a consequence of the proximity of a renowned local stud farm whose fame extended far beyond the confines of Saxony. The fair was held on the "vordere Platz," the town square, just a short distance from where the Brücke painters had rented temporary accommodation in premises once occupied by the old brewery. In his autobiography, he recalled how, in this painting, he sought to capture the "gleaming bodies of the animals" crowded on to the square and the throng of people around them. 1910 was, in any case, something of an annus mirabilis in the development of Pechstein's art. Even so, among his works of that year, Horse Fair is surely remarkable for its confidence in the handling of form and its striking economy and concentration of pictorial means, when compared with those of his Brücke contemporaries.
In 1928, the Nationalgalerie in Berlin, which had begun to assemble an extremely important and representative collection of works by nearly all the leading Expressionist artists, purchased the picture, along with two of Pechstein's seascapes, Stormy Sea and Two Ships at Königsberg. Horse Fair continued to be exhibited in the former Kronprinzenpalais-the "modern wing" of the Nationalgalerie, located on Berlin's Unter den Linden-until 1936. By this time, Pechstein, like the other members of the Brücke, had been declared a "degenerate" artist, and the following year the painting was confiscated by the Nazis. It appears to have been acquired on commission by Karl Buchholz, one of a small number of dealers charged with disposing of examples of "degenerate art." It is probably due to Buchholz's intervention that Horse Fair survived the years of violence and persecution to become, after the Second World War, one of the best-known images of Expressionist art.