Tape 19 - International gold situation

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-	Welcome again to this week's discussion	0:02
	on economics with Dr. Paul Samuelson, Professor of Economics	0:03
	at the Massachusetts Institute of Technology.	0:07
	This weekly service is produced and recorded by	0:10
	Instructional Dynamics Incorporated of Chicago.	0:12
	Professor Samuelson, what are the economic headlines	0:15
	for the week of March 17?	0:17
-	The international goal situation	0:19
	has been very active recently.	0:23
	At the moment it seems to have quieted down.	0:26
	One of the questions that I'm always asked	0:29
	when these crises break out is,	0:31
	what's going to happen to, say, the French franc?	0:34
	And I always give a very frank answer,	0:39
	and that is that these things are quite unpredictable.	0:42
	You can't say in advance of the November crisis	0:47
	whether this will be the crisis	0:50
	that will bring the French franc down.	0:52
	One couldn't say this March crisis	0:54
	whether would or wouldn't be.	0:58
	There are some things that just isn't worthwhile	1:00
	trying to predict in detail.	1:03
	What is true is that the French franc is not in equilibrium.	1:06
	If it was anywhere near equilibrium a year ago,	1:14
	then its position has rather seriously deteriorated	1:17
	because costs have gone up.	1:22
	So, General de Gaulle can, if he wishes,	1:24
	and if he's able to,	1:29
	maintain glory and maintain his reputation	1:31
	and punish the speculators	1:34
	who've been selling the Franc short	1:37
	by not letting the franc devalue,	1:39
	but he can't cause the trouble to go away	1:43
	by just doing that.	1:46
	And the trouble remains,	1:49
	so I suppose one has to depend upon the law of averages,	1:52
	namely, that if French costs do not improve	1:56
	relative to those of the rest of the world,	2:01
	then there will be recurrent crises at intervals	2:04
	depending upon whether this new statistic comes out or that,	2:11
	and the chances are that at one of these crises,	2:15
	the franc will go.	2:21
	It will go downward,	2:23
	be depreciated relative to other currencies,	2:25
	or alternatively, there may be a new and massive increase	2:27
	in exchange controls in France.	2:32
	I was talking out on the West Coast	2:36
	to an expert in international finance who told me that,	2:38
	he thinks de Gaulle might try to pull a ploy	2:44
	like that of the 1926 Poincare government in France,	2:49
	which, very substantially devalued the Franc at that time,	2:56
	made it an undervalued currency,	3:01
	and bought several years	3:03
	of rather exuberant prosperity to France	3:06
	at a time when England,	3:09
	with the overvalued pound	3:12
	that she had as a heritage of Winston Churchill's	3:14
	mistakenly putting her back in 1925,	3:18
	back on the old pre-World War I gold standard.	3:22
	But having done that, Churchill made the double error	3:27
	of putting England back at the pre-1914 parody,	3:31
	which involved a rollback of costs	3:36
	and which was a very expensive decision	3:40
	to the British economy.	3:46
	Some people will even trace the decline of Britain	3:47
	as a first class world power to that fateful decision.	3:53
	I'd like now to turn to a related subject,	4:01
	that of the future of our present system	4:05
	of international finance.	4:07
	I've just come back from a meeting on the West Coast,	4:10
	an International Monetary Conference	4:13
	held at the Claremont Colleges in Pomona, California.	4:16
	It was a very pleasant meeting.	4:24
	There were a great number of international experts there,	4:26
	and for those of us on the East Coast,	4:29
	the weather looked especially fine, there wasn't even smog.	4:32
	And I'd like to just reflect on	4:38
	some of the things that were said there	4:42
	for whatever insights they may give us	4:44
	into the future of the international system.	4:48
	First, who was there?	4:51
	Perhaps, I should say, first, who was not there?	4:53
	Jacques Rueff, who had been scheduled to be there,	4:58
	the advisor to General de Gaulle, the classical economist,	5:02
	was not there.	5:08
	I presume that the exciting happenings in France	5:09
	may have given him a good excuse for not being there.	5:14
	However, the viewpoint which he represents	5:19
	that the price of gold should be doubled,	5:22
	was	5:25
	persuasively represented there	5:30
	by Michel Halperin of Geneva, who is,	5:33
	this semester, a visiting professor	5:37
	at the University of Southern California,	5:40
	and I'll report in a moment on that view.	5:41
	It was not a popular view at the conference.	5:46
	There was, however, one American who supported it,	5:48
	and that is John Exter,	5:51
	who's a vice president at First National City Bank,	5:54
	and who is a forceful speaker for gold	5:57
	as the cornerstone of all international finance.	6:01
	Exter said that he felt himself to be	6:08
	in a very distinct minority.	6:10
	In fact, on the first day,	6:13
	when everybody was given five minutes to speak,	6:14
	Exter he said he differs so fundamentally	6:20
	from everybody present	6:22
	with the plausible exception of Halperin,	6:23
	that it really wasn't fair to hold him down	6:24
	to five minutes.	6:26
	It was a successful operation in that	6:29
	he got 10 minutes as a result.	6:33
	Others had to steal the extra minutes,	6:35
	and he was given them.	6:37
	Now, I said that there was nobody else there	6:40
	who represented that view.	6:42
	But, I misspoke, or slightly misspoke.	6:44
	Sir Roy Harrod, for many years at Oxford,	6:48
	at Christchurch, was there.	6:52
	And Sir Roy Harrod is also in favor of	6:54
	doubling the price of gold.	6:57
	However, as I was discussing to the distinguished professor	7:00
	Friedrich Hayek in the intermission,	7:07
	Hayek was there as an observer	7:09
	because he's a visiting professor at UCLA this semester,	7:10
	we agreed that although	7:15
	Harrod and Halperin stood for the same thing,	7:17
	they stood for it for quite opposite reasons,	7:20
	and I think it's worth going into that	7:25
	difference of opinion.	7:26
	Roy Harrod says that doubling the price of gold	7:29
	is not the best of all possible policies,	7:31
	but it's the best possible feasible policy.	7:35
	There's a shortage of international liquidity in his view,	7:39
	and he cannot think of any stroke of the pen,	7:42
	which by mutual agreement, could come anywhere near	7:45
	to increasing international liquidity	7:48
	by a 10th as much as a massive increase	7:52
	in the price of gold by one fell swoop would do.	7:58
	But as Ike and I were agreeing,	8:03
	Halperin wants to double the price of gold,	8:04
	and then go back onto the discipline of the gold standard.	8:07
	I suppose that's what Jacques Rueff claims to wish,	8:11
	and certainly, something like that	8:15
	is what John Exter would advocate.	8:17
	But we get strange bedfellows espousing particular policies.	8:19
	Roy Harrod wants to double the price of gold	8:24
	so that nations can pursue expansionary,	8:29
	high employment, full employment policies,	8:32
	the kind of thing which is anathema to Dr. Halperin.	8:35
	Harrod feels, and many, if not most of the fellow travelers	8:40
	who want to double the price of gold feel,	8:45
	that if the price of gold were doubled,	8:47
	then the world would have another 10 years	8:49
	in which to sow its wild oats	8:52
	of unsound fiscal policies and monetary policies.	8:54
	Now, the language that I've been using is mine,	8:59
	and not that of these people nor of Harrod,	9:02
	but I think that the words are well-selected	9:06
	to represent what is in their, in their viewpoint.	9:12
	I should mention	9:17
	one other important convert to this position,	9:19
	Dr. Milton Gilbert, who is an expert	9:23
	at the Bank for International Settlements at Basel,	9:27
	is also, in my judgment,	9:31
	in favor of an increase in the price of gold,	9:33
	let's say, doubling the price of gold.	9:36
	I don't think that I know	9:38
	where Dr. Gilbert has come out in the public press	9:41
	and said exactly that.	9:45
	Perhaps his position at the BIS rules out	9:46
	his making public statements, but inexorably,	9:50
	between the lines of what it is that he writes,	9:55
	the logic of what it is that he espouses,	9:57
	I think can be read.	10:00
	And so, in my book,	10:03
	Dr. Gilbert is in favor of doubling the price of gold.	10:05
	I regard him as an important stalwart	10:08
	who has been recruited	10:11
	to that view.	10:14
	I also suppose that being at the BIS	10:17
	and being part of the central bankers mechanism,	10:20
	not mechanism, but apparatus on the continent,	10:26
	that Dr. Gilbert would not be of this view	10:30
	if there weren't others there who were also of that view,	10:33
	or he would not be so candid in espousing,	10:36
	in expressing that view,	10:39
	if there were not others who were of that view.	10:40
	And so, I take his recruitment to this cause	10:42
	as an omen and a token	10:46
	that there exists a substantial amount of opinion	10:49
	representing, you might say, the conventional wisdom,	10:56
	who have become persuaded that in this world of evil,	10:59
	the least of all evils is a all-around doubling	11:03
	of the price of gold.	11:09
	Is there merit in this policy?	11:15
	I would not like to dismiss the case from court summarily	11:19
	because for 24 hours,	11:26
	I myself, just about a year ago,	11:30
	was an adherent of this policy.	11:33
	And let me recount the circumstances	11:39
	because I think this might cast some light	11:42
	on the thinking of all the, many of the people	11:47
	who regard this as the best feasible policy.	11:50
	Just exactly a year ago, you will recall,	11:56
	there was a tremendous gold rush, a run on gold.	11:59
	The private hoarders were accumulating	12:04
	up to the tune of billions of dollars.	12:06
	The rate was so great	12:10
	at which gold was pouring out of the official reserves,	12:13
	of the official treasuries and central banks of the world,	12:17
	and into private hordes	12:20
	that the situation was absolutely untenable.	12:23
	It could not have lasted	12:26
	another couple of weeks at that rate	12:27
	without sucking all the gold	12:32
	out of the central reserves of official authorities,	12:34
	and I include in this the gold in Fort Knox in Kentucky,	12:39
	our own US gold hoard.	12:43
	Consequently, something had to be done,	12:47
	and there were frantic weekend meetings.	12:49
	And when I thought of all of the things that might be done,	12:53
	including comprehensive exchange controls	12:57
	of a very malignant sort,	13:00
	it seemed to me that	13:02
	better than this was to give us more time.	13:04
	In other words, I'm speaking out	13:10
	more nearly like the Harrod position	13:11
	than like, the Rueff-Halperin position.	13:14
	Give the world more time,	13:17
	and pick the evil compromise with evil,	13:21
	and double the price of gold.	13:26
	I wrote this up in an article	13:28
	that appeared in The Washington Post.	13:31
	It appeared, if my memory is correct,	13:34
	on Sunday, March 17, but as you know,	13:37
	newspapers in particular, the Sunday newspapers,	13:43
	had to be prepared in advance,	13:45
	so my article had to be written about the previous Friday	13:47
	before the weekend meetings had finished,	13:53
	and before any announcement had been made.	13:59
	And in that article,	14:03
	I, for the first time, came out on the Harrod side.	14:06
	You might say that I seem to be coming out	14:11
	on the Rueff and Halperin side,	14:13
	because I can tell you, it was extremely embarrassing	14:16
	in the week or so that followed,	14:19
	to be getting letters of congratulations	14:21
	from people like Dr. Rueff.	14:23
	I'm not a great admirer of Dr. Rueff	14:27
	as an economist.	14:30
	I also got letters	14:33
	from the president of Home State Gold Mining	14:34
	telling me how delighted he was	14:36
	to read my persuasive and cogent words.	14:39
	I got the letters from South Africa,	14:44
	and I was even invited to a conference	14:48
	which was being held, to be held,	14:51
	if I remember correctly, in Geneva,	14:53
	just a little bit later	14:55
	to discuss the future of the price of gold,	14:57
	and most particularly,	15:02
	to discuss the doubling of the price of gold.	15:03
	All expenses were to be paid, et cetera,	15:05
	et cetera, et cetera.	15:08
	This brings up an important point that must be mentioned	15:14
	in connection with the political economy	15:19
	of this particular problem.	15:21
	Most of the people	15:23
	who espouse an increase in the price of gold	15:26
	are not disinterested.	15:29
	The gold mining lobby	15:33
	is a very important one in this regard.	15:35
	I do not say this by way of criticism.	15:40
	I would consider the gold mining companies	15:42
	derelict in their duty if they did not seek to	15:45
	improve their earnings	15:52
	by agitating,	15:54
	by corresponding, by persuading people	15:58
	to increase the price of gold.	16:02
	They aren't doing anything different	16:03
	from what the button hook lobby does,	16:05
	what the iron and steel institute does,	16:08
	what the oil lobby does.	16:11
	And there is absolutely nothing to criticize in this,	16:13
	so long as it's open above board and you know exactly	16:17
	where the man's financial interests are,	16:20
	you are forewarned	16:23
	and it is their right,	16:24
	and even the duty and obligation to their stockholders	16:29
	to pursue this particular course.	16:32
	But I've also noticed over the years	16:34
	that those people generally who support this policy,	16:37
	even when they do not come from South Africa,	16:43
	even when they do not represent	16:46
	a domestic or foreign gold mine,	16:49
	are often themselves,	16:53
	turn out to have a financial interest in the matter.	16:54
	I don't make anything of this because	16:58
	people are sought out who have that view,	17:03
	and then they are hired as consultants,	17:06
	and that's the way game is played.	17:09
	If Sir Ronald Fisher was of the opinion that	17:14
	cigarettes did not lead to lung cancer,	17:18
	that cigarettes were not	17:21
	an important factor in affecting longevity,	17:24
	he'd only express that opinion, let's say,	17:27
	in a learned and scientific journal,	17:30
	and let us say, in a learned and scientific way,	17:32
	to have us come to the attention	17:35
	of the trade association of the tobacco industry.	17:37
	And naturally, be interested in the truth as they are,	17:41
	they would put a person like Sir Ronald Fisher	17:44
	on a commission to study this,	17:49
	paying him, if it is necessary to do so,	17:53
	to pursue his scientific and objective studies.	17:57
	A very dear, old teacher of mine,	18:00
	Professor Edwin Bidwell Wilson,	18:02
	emeritus professor from the Harvard Medical School,	18:05
	was on a similar commission	18:10
	with respect to the United States cigarette companies.	18:13
	And there's nothing to be criticized in this.	18:19
	Moreover, I've noticed this,	18:23
	that people do put their money where their mouth is,	18:27
	and if I were convinced that the price of gold	18:31
	ought to be doubled,	18:35
	it would be a short step from that	18:36
	to my believing that it will be doubled.	18:40
	This is perhaps a romantic axiom	18:42
	that the world will somehow do what it ought to do,	18:46
	and if I think that the price of gold	18:48
	is going to be doubled in the next year or two,	18:51
	or even in the next five years,	18:55
	then, if I have a portfolio of any size,	18:57
	I will naturally begin to look around	18:59
	for good marginal Canadian gold mining companies	19:01
	for solid	19:05
	blue chip South African gold mining companies	19:09
	and after I have invested	19:13
	a prudent amount of my portfolio in that matter,	19:17
	I will be a very unusual fellow if that doesn't influence me	19:21
	in connection with my espousal as a political economist.	19:26
	Now,	19:32
	that is,	19:34
	I mention that because I have learned from long experience	19:35
	that it is part of a ball game,	19:39
	but it's a very unimportant part of the ball game.	19:41
	The people who advocate an increase in the price of gold,	19:46
	if they were paid nothing, which still advocate it,	19:51
	and some of them are so strong in their beliefs	19:54
	that they would pay money to bribe the world	19:58
	to get on to this new system if it were necessary.	20:01
	Now, what is it that changing the price of gold could do?	20:08
	There are two	20:17
	distinct and distinguishable problems	20:21
	of international finance at the present time, in my view.	20:24
	There is the problem of the dollar.	20:28
	And there is a problem, long run problem,	20:30
	of international liquidity.	20:35
	I might reword that second long run problem,	20:37
	and call it the long run problem of international liquidity	20:40
	and of the adjustment mechanism.	20:44
	Now, a doubling of the price of gold,	20:48
	itself	20:53
	might very well	20:55
	be contrived in such a way	20:57
	that it would leave	20:59
	all	21:01
	currency interrelationships	21:04
	completely unchanged.	21:06
	Now, in my view,	21:09
	that kind of a change,	21:10
	we would call that a revaluation	21:12
	or an all around devaluation,	21:14
	and it will involve the depreciation of no currency	21:17
	vis a vis any other currency.	21:19
	In my opinion, that would not substantially	21:22
	do anything to solve the dollar problem.	21:27
	The dollar problem, in my view,	21:30
	is a problem of our costs relative to costs abroad.	21:33
	It's a problem of our total demand	21:39
	for goods and services from abroad,	21:42
	including those on capital account,	21:44
	in comparison with the demand for our goods and services	21:46
	by foreigners.	21:51
	And in my judgment, the American dollar is overvalued dollar	21:53
	at the existing parity.	21:59
	How then, could one use	22:02
	a massive change in the price of gold	22:04
	to make some progress on the dollar problem,	22:07
	as well as on the longer run	22:11
	liquidity and adjustment problem?	22:13
	It seems to me that the most natural way to do that	22:16
	would be to have the price of gold	22:19
	in terms of German marks,	22:24
	or in terms of some other	22:26
	very strong and hard surplus currencies,	22:28
	they're not so easy to enumerate.	22:30
	The mark always comes to mind, but after that,	22:32
	one gets to stutter a bit.	22:35
	Ah, never mind.	22:36
	Have the price of gold double in terms of	22:38
	all of those strong, hard surplus currencies?	22:42
	There would be no change in the cross rates	22:46
	between any two of the currencies	22:48
	in that particular block.	22:50
	Let's say the mark, the yen,	22:52
	for the sake of the argument, the Swiss franc,	22:55
	and the guilder.	22:59
	Now, what about those currencies	23:02
	which are deemed to be overvalued,	23:07
	like the American dollar, at least in my view?	23:10
	For those currencies,	23:14
	the price of gold should be a little bit more than doubled.	23:17
	Instead of increasing by 100%,	23:20
	perhaps let it increase by 120%,	23:22
	or 110%.	23:28
	This way, we would get something like that a 10% reduction	23:31
	in the cost of the dollar in terms of marks.	23:36
	So, we would have simultaneously, a devaluation,	23:40
	and a dollar depreciation.	23:45
	Now, what is the purpose of having the dollar cheapened	23:47
	relative to the mark?	23:51
	It's the good old classical purpose	23:53
	of increasing the outflow of our exports,	23:55
	reducing the inflow of our imports.	23:58
	This, on both goods and services.	24:01
	Both on merchandise, account,	24:02
	and so-called invisible account.	24:05
	And also, this would have equilibrating effects	24:09
	upon the capital components of our balance of payments.	24:15
	As a result of that, the dollar might come into equilibrium.	24:22
	Well, until recently, the gold buds,	24:27
	those who wanted to double the price of gold,	24:31
	were centered primarily in Paris,	24:33
	and up until a year ago, Paris, under de Gaulle,	24:36
	was feeling very arrogant toward the dollar,	24:41
	toward the United States.	24:45
	Well, I dare say, toward the world,	24:47
	the rest of Europe included,	24:50
	and there was no sign at all that the French were willing	24:51
	to have the franc rise in value relative to the dollar.	24:55
	I thought more recently, since the student uprisings,	25:03
	since the French election, since the general strike,	25:08
	since the more recent general strike,	25:11
	that there've been some signs, at least diplomatic signs,	25:14
	that we've been having dangled out to us	25:18
	the prospect that what I just described what happened,	25:22
	namely, that not all currencies would have their gold price	25:25
	exactly double.	25:32
	Those currencies, which tend to be overvalued	25:34
	and need to have a readjustment	25:37
	might have something more than the rest.	25:39
	Of course, by this time,	25:42
	the franc has probably joined that particular category,	25:43
	and so, the French, out of self interest,	25:48
	are no longer so recalcitrant.	25:51
	Well, in closing,	25:56
	do I think that this view will prevail	25:59
	sometime in the next year or the next couple of years?	26:02
	I guess, I really don't.	26:07
	A bad enough crisis might bring it about,	26:09
	but I think the two tier system can work,	26:13
	and there are some very telling arguments	26:16
	in the political arena against this.	26:18
	For one thing, nobody particularly likes the South Africans.	26:21
	At Princeton, the students riot,	26:28
	if securities are held in a company which has a slight,	26:31
	even a slight interest in South Africa.	26:34
	And so, South Africa's thought	26:36
	as one of the main beneficiaries.	26:37
	Two, nobody particularly likes the Russians,	26:40
	and a good deal of the gold that isn't in South Africa	26:43
	presumably is in Russian gold mines.	26:47
	Three, nobody particularly likes hoarders,	26:49
	and the hoarders would be the ones who would benefit.	26:53
	And four, nobody particularly,	26:56
	I have to say this very delicately,	26:59
	is feeling too affectionate towards France at this stage,	27:00
	and this is the position which	27:05
	the French would benefit from primarily.	27:07
	So, there are very great transitional difficulties	27:11
	in going on to this,	27:16
	including the fact that you punish the allies	27:17
	who remain most faithful to you earlier	27:19
	when they were tempted to ask for gold	27:24
	and were persuaded not to.	27:26
	I think the future is longer than the present,	27:28
	and these arguments should not be conclusive,	27:32
	but I think that as far as	27:36
	the next two or three years are concerned,	27:37
	they in fact will be conclusive,	27:39
	so, why go further in finding arguments against it?	27:41
-	You've been listening to this week's commentary	27:46
	on the current economic scene	27:48
	by Professor Paul Samuelson of MIT	27:49
	in Cambridge, Massachusetts.	27:52
	If you have questions, suggestions, or comments,	27:53
	write to Instructional Dynamics Incorporated	27:56
	166 East Superior Street, Chicago 60611.	27:58

Item Info

Title:

Tape 19 - International gold situation

Date:

1969

Contributor:

Samuelson, Paul A. (Paul Anthony), 1915-2009

Subject:

Format:

audiocassettes

Language:

English

Digital Collection:

Paul A. Samuelson papers, 1933-2010 and undated

Source Collection:

Paul A. Samuelson papers, 1933-2010

Series:

Economics Cassette Series: Paul Samuelson

Rights:

Limited Re-Use

CC BY-NC 4.0

Rights Note:

This material is made available for research, scholarship, and private study. Copyright in this material has not been transferred to Duke University. For reuses of this material beyond those permitted by fair use or otherwise allowed under the Copyright Act, please see our page on copyright and citations: https://library.duke.edu/rubenstein/research/citations-and-permissions.

Identifier:

RL10082-CS-0019
ref2177_f1p
samuelsonpaul
duke:325042
pstau001019
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Tape 19 - International gold situation

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Economists' Papers Archive

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