Economics 101.5 Continued -- Seminar
Let me suggest the following example.

Rather than Thai stamps which may act a bit differently than a broader market, let us illustrate the discussion with a relatively common but valued stamp -- the Penny Black. This stamp is somewhat like a universally available commodity where, within an equivalent quality range, the items are interchangeable. The supply may be considered to be in two categories -- the frozen supply in the hands of collectors and accumulators and the floating supply in dealer and auctioneer stock. In this case the floating supply is much smaller than the frozen supply.

I would hypothesize that the market price is ultimately linked to the price in the dominant -- i.e. largest -- market. In the case of the Penny Black, I believe that the market place with the largest floating supply of Penny Blacks is the UK.

In a stable situation, the price throughout the world is nearly the same except for slight variations in local supply and demand (market activity) and the effects of the costs of transportation and the barriers to world-wide commerce -- some of which are psychological and just plain inertia. Wise buyers look for the best purchase to be made in a world-wide market place. Real price differentials can not be maintained. The perceived value and price is identical in all market places.

Now collectors in the UK have a view of what the perceived value/price is at any one time. The perceived value/price is not affected directly by currency exchange ratios. It is affected by the demand created by the expenditure of marginal cash on such frivolities as stamps.

If the UK philatelists perceive the value of a Penny Black to be 50, it will remain at 50 even when the $ swings from $1.30 to the to $2.00 to the . This will occur to the extent that the change in exchange rate isn't accompanied by a change in the economic climate which causes the British to significantly change their attitudes toward marginal expenditures like buying stamps. Such a change seems unlikely to me.

In other stamp markets -- the U.S., for instance -- the price will also remain the same at say $80 (using $1.60 to the ). However, when the $ falls relative to the then the smart buyers begin to import their needs from the biggest market -- the UK -- because of the favorable price. Once this starts the effect of the change in exchange rates causes the price of the Penny Black to fall in the country with the stronger currency relative to the country with the dominant market. Thus the U.S. demand is satisfied by Penny Blacks at a lower price available from the UK. As the demand falls in the U.S. for the locally available supply, the price of Penny Blacks in the U.S. falls as well.

The result of this activity is that the changes in currency exchange rates does not affect perceived value/prices in the dominant market but does cause the prices in the other markets to rise or fall with the exchange rates. The commodity in question moves to the market with the strongest currency. The price perception/value for all is determined by the dominant market.

To extend this to the Thai stamps one must first determine where the dominant market is for Thai stamps. Almost universally, the strongest market for a country's stamps is at home. Certainly there is more interest in Southeast Asia than there is in the U.S. (I can't prove that but I do believe it.) In the case of the recent Asian economic woes, the Thai stamps could easily have been effected by changes in the local marginal view of the value of Thai stamps. This would cause more supply to become available at more attractive prices for export due to the lowered value of the Thai baht and the increased supply. It then makes sense that such a lower-priced supply would devalue the Thai stamps in the U.S. -- the country with a strong currency. It should also be accompanied by an increased supply of such stamps in the U.S. We'll have to watch.

Another example you might like to consider is what happened after World War II to the stamps of Germany. Germany was an economic disaster and not much money was available for such marginal purchases. The U.S., with a strong currency and active stamp buyers accumulated much of the supply of mint German stamps from the postwar era. It wasn't until the 1970s that Germany became prosperous again, the strength of the Mark grew and stamp collecting expenditures returned to favor. The only source for mint German stamps of the post-war era was from export sources. Much of the material which had been acquired in the U.S. was expatriated at much higher prices. This was accompanied by higher retail prices in the U.S. echoing the values in the dominant market -- Germany.