Price Vs. Policy: A Tale of Two Markets

Wriston, Walter B.


'How Soon Will the World Go Broke?'


I do not propose to tell what conclusion to draw from this. I merely report it as an interesting fact, and one you might want to remember the next time you see an alarming article asking "What's happening to the price of gold?" or "What's happening to the price of oil?"

The financial pages of the newspapers alternate between these two questions, but they are rarely discussed at the same time between they tend to cancel each other out. That would interfere with another favorite question: "How soon will the world go broke paying for high-priced oil, and when will the banks collapse?" As Tallulah Bankhead once said about a bad play, there is much less to that than meets the eye. But the curtain never seems to fall.

The argument for this scenario has been ably presented, for instance, by an international panel of experts to readers of the influential quarterly, Foreign Affairs:

In all likelihood, unless further approaches to cooperative action are made within the next few months, some oil importing countries will have run out of goods to sell, or markets to reach, or capacity to borrow to cover their deficits, and a number may have become unable to meet the servicing of the enlarged debts.

Whether that would result in currency devaluations, in defaults by banking and business firms in those countries, in national debt moratoria, or in political revolution and debt repudiation, the entire structure of world payments, and of trade and financial relationships, would certainly be fractured.

Before anyone starts to head for the exits, let me hasten to add that "the next few months" referred to in the article have long since passed. The article appeared in the winter of 1974, following the first round of OPEC price increases. It was wrong, but it accurately reflected the conventional wisdom of the time. Those of us who believed in the strength of the marketplace simply could not get anyone's attention.