FOREIGN EXCHANGE: Bargain Sale

In the wake of worldwide currency devaluation last week (see FOREIGN NEWS) there were plenty of bargains—and also considerable confusion over prices. Nowhere was the confusion greater than on the international airways. On all eastbound transatlantic flights out of New York, passengers paid the usual rate of $350. But in London, westbound passengers could fly on British planes for the old rate of £86, a saving, under devaluation, of $109.

In London, 32 of the 60 airline members of IATA (International Air Transport Association) held a hurried meeting, worked out a temporary solution. From Oct. 1, until permanent rates are set, all transatlantic fares—both ways—will be at the $350 rate, thus setting a new rate in London of £125. But from London eastward to Cairo, New Delhi, etc., fares will remain unchanged at their old rate in pounds, francs, etc. That meant that U.S. airlines will have to take as much as a 30% cut in dollar fares to compete. On the sea lanes, Britain’s luxury liners, a prime source of dollar revenue, promptly raised their pound fares at least 30% to keep their dollar intake the same.

Too Much, Too Soon? In the U.S., there was a temporary spate of bargains in British goods. Many department stores reduced their British goods, bought at old pound prices, as much as 25% to clear them out in preparation for lower prices. But many of the new prices would not be anywhere near that low, and some would not change at all. Scotch distillers, who were already selling as much whiskey to the U.S. as they could make (3,000,000 cases a year), promptly upped their export prices 30% to cancel out the entire slash in the pound. Many another British maker of goods with a steady U.S. demand upped his prices anywhere from 10% to 15%.

But some British salesmen in the U.S. found that business boomed as soon as prices were cut. Britain’s Drake America Corp. slashed men’s Argyle socks 22%, cashmere sweaters 20%, and most other goods accordingly. In two days, it booked $1,250,000 worth of orders. Austin Motors Co. Ltd., which had slashed its prices from 11 to 15%, sold out its entire U.S. stock of 1,000 cars in the first two days after devaluation, promptly ordered 500 more. But such price cuts seemed likely to last only in those British goods, such as autos, which the British were finding hard to sell.

Good for Everyone. On the other hand, many U.S. exporters of machine tools, autos and farm equipment, feared that cheaper sterling would cut deeply into their markets in South America and overseas. On the whole, Harvard’s Economist Sumner H. Slichter thought devaluation would benefit the U.S. economy. Said he: “American business concerns have been reluctant to go after business by cutting prices . . . Foreign goods at lower prices will stimulate at least a small amount of price-cutting in the U.S. . . . [And] any success of other countries in selling to the U.S. will simply increase their demand for American goods.”