Calling the Market Black

February 18, 1952

In the spring of 1947 I was a dinner guest in the home of a Cabinet minister of a European country that shall remain nameless. Generous portions of butter were served. “From the black market,” volunteered my host. “Everybody in this country has to go to the black market for butter; nobody could get along on the official ration.” And he seemed quite forgetful that he was a member of the government that had imposed a price and a ration that he himself felt forced to violate.

He was merely part of what has become an established world hypocrisy. Today bureaucrats try at nearly every point to stop the market process from functioning. Fortunately for production and trade, they are never completely successful. So they denounce the markets that they have illegalized, but cannot prevent, as “black.”

But they have more respect for the black markets than they pretend. This was unconsciously revealed by Sir Stafford Cripps when he slashed the official value of the pound in 1949 from $4.03 to $2.80—and gave as his reason for choosing the latter figure the fact that this was the value the black markets of the world had been placing on the pound!

When free markets are forbidden, black markets become the best and often the only available guide to real values. If they did not exist, moreover, in many parts of the world the most essential commodities would either not be raised, made, bought, and sold at all, or only in far smaller quantities. Millions of people in the world today literally owe their very lives over the last dozen years to the black market, which is the only resort when price fixing has become too absurd, disruptive or intolerable.

It is high time the black market received the recognition it deserves. It gets it with the publication of The 1951 Black Market Yearbook by Franz Pick. Born in Czechoslovakia, educated at the Universities of Leipzig and Hamburg, Dr. Pick in 1945 started in New York a monthly report on world black money markets. His book lists the official and black-market fluctuations in the prices of dollars in the currencies of 54 countries, gold in 33 international trading centers, and of silver, platinum, and diamonds.

The book is dedicated “to the more than 2,000,000,000 victims of inflation, who, for obeying the law, have been punished by the law.” It is full of fascinating tables, graphs, and other information. You can find here that at the end of 1951 the black-market value of the British pound was $2.40 (compared with its official parity of $2.80); that the black-market value of the West German mark was 5.13 to the dollar (close to the official par of 4.20); that the German Eastern zone mark sold at 21 to the dollar; that black markets in American dollars flourish even in draconian Moscow, where the Russian ruble trades at 25 to the dollar (officially it is 4 to the dollar); that the Nationalist Chinese yuan had reached 425,000,000 to the dollar in September 1949; that the Chinese Communist dollar was 38,500 to the American dollar at the end of 1951, but the National Taiwan dollar in Formosa was less than 27 to the American dollar; and that in Cairo, gold sovereigns that bear the effigies of Kings, and not of Queens, are preferred by Mohammedan hoarders.

To these facts and tables Dr. Pick adds his own comments and predictions. His definitions are unconventional: Hoarders are “individuals who have no confidence in the skill of their country’s monetary management, and who prefer illegal ownership of gold or hard currency to the legal expropriation by patriotic possession of paper money.” Devaluation is “the unpunished crime of state bankruptcy.”

Dr. Pick believes that the future of the dollar “is not as rosy as the hoarder in Buenos Aires or Shanghai sees it to be.” He concludes that world inflation is likely to continue, and that “black markets are here to stay,” because “more and more people will disregard existing regulations in order to preserve the remaining value of whatever possessions they may have.”