July 11, 1973

Last User Sets Dollar Value

Who cares what the international bankers say about gold and the U.S. dollar?

In London, the dollar price of an ounce of gold reaches a record $127 - in comparison to the official U.S. rate of $42.

Tourists in Paris now pay 25 U.S. cents for a franc, instead of the 20 cents of a week ago.

Around the world, money markets tremble under the onslaught of feverish buying and selling.

The economists tell us with a judicious pursing of lips that our "balance of payments" is out of kilter, while the politicos wail about" loss of confidence" triggered by Watergate.

Hooey!

These are symptoms, not causes.

Gold and money acquires a mystique only when explained by experts.  It used to baffle me until I was given a five-minute explanation by a Greek businessman between courses of a lunch in Athens.

He was an industrialist who bought supplies from, and sold finished products to, customers in the United States and several other countries.

"When I buy a computer from an American firm I have to pay for it with American dollars," he said.  "If I buy a truck from Germany I give German marks in payment.  Some foreign money I have in my bank from previous sales.  If I am short a particular currency I buy what I need from the money market with Greek drachmas.

"If I, and other businessmen like me, are experiencing a slump, or our need for computers and trucks is filled, we do not bid up the price of dollars.  Conversely, we drive up the price of dollars during a general expansion period.

"The ultimate value of a dollar - outside America - is determined by the need for dollars to purchase American goods.

"The buying and selling of dollars by speculators is a nuisance and has little effect on price in the long run.  In the short run, emotions and rumors artificially inflate or deflate currency as the speculators jockey for a fraction of change in the market.

"This high volume of currency speculation is the curse of European business men.  In America, small amounts of idle cash can be risked for quick profit in the stock market.  We do not have as much publicly owned business in Europe so the small, adventuresome investor speculates in currency.

"This is changing on both sides of the Atlantic.  I now own several blocs of American industrial stock; and I know Americans living near international airports, where there are active currency exchanges for travelers, who buy and sell foreign money.

"Incidentally, none of us are making very much.  Our losses in both cases just about equal our gains.  But, we hope.

"Money speculators are bothersome middlemen.  Sometimes they harm us final users of dollars when they gobble up a currency for no good reason, but it eventually evens out when they get panicky and dump currency.

"None of this has anything to do with the price of gold.

"Gold is the traditional refuge of speculators from uncertain markets or runaway inflation.  The price of gold is bid up by unsophisticated buyers - generally the peasants and laborers.  If they see hard times ahead they turn their cash, almost always that of their native land, into gold bracelets which the wife wears constantly.

"Of course, the speculator, again, makes a little profit in the middle.  However, he neither started, nor can he stop, the gold rush.

There is a new type of gold buyer, though, who knowingly takes a beating in the gold market because he doesn't care.  Specifically, he is the Arabian oil sheik.

"Oil has become the most valuable commodity in the world today.  The black gold of the middle east brings in enormous amounts of money, mostly American dollars.  Yet, their nations are underdeveloped.  Literally, the oil producing, middle eastern nations can't spend their money fast enough.  After they have bought a few Cadillacs and paved a few streets there is little left that they want.  They can't use American computers and they can drink only so much Coca Cola.

"Their dollars pile up because they ultimately are spendable only for American products - or gold.  They believe that in the distant future paper money, through inflation, will catch up to gold and be convertible at that time into the strongest currency.

"A sophisticated nation would plow back its dollars into American investments, spend the return, and have the principal intact.  This is what Japan and Germany are doing in your country.  I predict that in another decade many of your principal industries will be owned by these two nations.

"But most gold buying nations are not that smart, hence gold goes up in price on the open market.  All gold is fools' gold.

"In short:

"The American dollar will go down in value as our buying demand is filled - by our own production, by you and, increasingly, by your competitors.

"The price of gold will go up in cost as the unsophisticated investors are led by their memory of history and distrust of man-made institutions to pay a high price for supposed safety.

"Tinkering with exchange rates, interest, reserves, drawing rights and all the rest is useful in convincing the ignorant that experts can successfully manipulate the flow of money.

"In reality, however, the price of money and gold is governed by nothing more than human nature.  What motivates people?

"You Americans have a reputation for being able to sell refrigerators to Eskimos - of creating a desire through advertising for products formerly unheard of.

"There is nothing wrong with the American dollar that a little human motivation won't cure.

"Produce more and sell more.

"Stop listening to the Gnomes of Zurich.  Talk to your shop foremen and your star salesmen.  Follow their advice, and the dollar will once again be as good as gold."

Author: Lindsey Williams