Judging Economic Policy

Selected Writings Of Gottfried Haberler

Richard J Sweeney

• Publisher: Routledge
• Year: 2021
• ISBN:
  9780429723643
• Edition: 1
• Topic: History
• Subtopic: World History
• Index: History

In this engaging volume, the editors present the influential work of economist Gottfried Haberler, whom Paul Samuelson judges qualified for about two-and-a-half Nobel prizes in economics. Throughout the book, Haberlers essays reveal the clarity of his analyses and his ability to identify crucial policy choices, whether grappling with issues of inflation, unemployment, trade, or development. Presenting Haberler as the eclectic economist he is, the editors show that far from being an ideologue, Haberler is an economist who uses whatever approaches and theories are appropriate for the problems he considers. Paul Samuelson judges that Gottfried Haberlers work should qualify him for about two-and-a-half Nobel Prizes in economicsone for his quantum improvement in trade theory beyond Ricardos paradigm of labors comparative advantage, one for his definitive synthesis of business cycle theory, and beyond these his policy wisdom over a period of six decades. It is Haberlers policy wisdom that serves as the basis for this comprehensive collection of the eminent economists work.Throughout the book, Haberlers contributions demonstrate the clarity of his analyses for exploring the complex economics of policy issues and for identifying key governmental responses to problems of unemployment, trade, and development. Presenting Haberler as the eclectic economist he is, the editors show that far from being an ideologue, Haberler is an economist who uses whatever approaches and theories are appropriate for the problems he considers. The portrait that emerges is one of a multifaceted thinker, able to choose freely among competing theories and to effectively apply them to complex and demanding policy issues.

1
Introduction

Dick Sweeney, Ed Tower, and Tom Willett

DOI: 10.4324/9780429046858-1

This volume collects edited versions of selected essays of Gottfried Haberler, most of them written after he retired from Harvard shortly after the mandatory age of 70 and joined the American Enterprise Institute, in Washington, D. C., where he continued to work until shortly before his death on May 6, 1995. Tower used to assign these annual volumes to his Duke undergraduates to evaluate; the students would grade and critique the essays in these volumes. Consistently, Haberler was credited with producing the best essays, besting his colleagues who were sometimes 50 years younger. This admiration for Haberler’s recent work by students who never knew him but found his arguments compelling indirectly suggested the project to us.

To those who know Haberler’s work well it is difficult to disagree with Paul Samuelson’s judgment that they:

qualify him for about two-and-a-half Nobel Prizes in Economics-one for bis quantum improvement in trade theory beyond Ricardo’s paradigm of labor’s comparative advantage, one for his definitive synthesis of business cycle theory, and beyond these bis policy wisdoms over a period of six decades.¹

This “policy wisdom” is the basis for thfa volume. Two collections of Haberler’s technical contributions have been published and the February 1982 issue of the Quarterly Journal of Economics contains detailed summaries and perspectives on the body of his technical work.² We shall not attempt to repeat these appreciations here. Our focus is on Haberler’s contributions to economic policy analysis, both as recognition and to make bis contributions more easily available for readers interested in international and macroeconomic policy.

We also believe that having these writings pulled together in one place enables the reader to develop more easily an understanding of bow Haberler went about analyzing policy. Haberler’s mastery of the policy essay is something that all of us who are interested in economic policy should seek to emulate.

Gottfried Haberler was unquestionably one of the great economists of the twentieth century. Both the quality and breadth of bis contributions are exceptional. His work contributes importantly to our understanding of international trade theory and policy, domestic and international monetary and macro economics, and the international trade aspects of economic development. Clarity of thought and exposition characterize Haberler’s work, as well as the ability to distinguish the important insight from the flashy detail. As his brother-in-law, Herbert Furth, has written:

In his view, economic activity and economic science are based on common sense; philosophy, mathematics, even statistics are valuable and important, but--like drugs in medicine--always to be applied with caution. Otherwise we risk that they might obscure instead of clarifying the underlying real relationships.³

Herbert Stein characterizes Haberler as follows:⁴

Gottfried was a policy wonk, but he was an exceptionally scholarly one. He was not content to spin out his own thoughts of the moment, however justified he might have been in doing so by his long immersion in economics. He wanted to cite facts and authorities. Much of his writing while at the AEI consisted of essays in the annual volume, Contemporary Economic Problems, edited by William Fellner and containing essays by seven or eight other people. Gottfried’s articles always contained about twice as many footnotes per page as any of the others. The footnotes had a wide range, running from the classics to the latest pamphlet from a Washington think-tank. He read everything and remembered everything he read. Many of the footnotes were I think, exceptionally generous, giving credit to younger economists for ideas that Gottfried was quite capable of having on bis own.

Most of the articles that Gottfried wrote while at the AEI dealt either with stagflation or with the international financial situation, both leading issues of the time … These papers served to clarify many issues. And they still remain as models of how to write a paper on economic policy-explaining the reasoning at every step of the way and giving due attention to competing points of view.

Rereading his great books, The Theory of International Trade, With Its Applications to Commercial Policy (1936) and Prosperity and Depression (1937), one is struck by how relevant much of the analysis remains. Of immense importance when they were written, they have also stood the test of time.

While the writings reprinted here often deal with specific historical policy episodes, the writings have been selected and edited to illustrate important policy insights that are of equal relevance today, and which we strongly believe will still be so tomorrow. For example, we are struck by the similarity of Haberler’s positions on the critical role of rigidities and distortions in labor and capital markets (discussed in his “Overview” essay, and the section, “Inflation: Causes and Cures”) to the positions taken by 1he Economist in the Spring of 1994, especially in its “Schools Briefs,” which compare American and European labor markets.

The essence of Haberler’s approach is openness and principled eclecticism. His eclecticism is not that of the true believer who picks and chooses among approaches and evidence to present the best case for preconceived conclusions, but rather one who starts with basic principles and studies how their application may need to be modified under varying circumstances. For this reason, he often sounds like a monetarist to Keynesians and like a Keynesian to monetarists.

In truth, his position is a logically consistent and powerful one. He remains convinced of the power of monetary forces at a time when they were ignored or downplayed by most Keynesians, but he refuses to believe that controlling the money supply is all that one need worry about. Thus, he also gives considerable attention to the possibilities of cost-push pressures in the economy. He maintains skepticism that government intervention in the economy would work as well in practice as in the world of ideal theory. For example, while he acknowledges cases in which free trade might not be the ideal solution, he wishes to put a significant burden of proof on those advocating government intervention. In another example, his innovative proposal for a government incomes policy stresses the potential gains from government activism to reduce regulations and promote more competitiveness of the economy, at a time when most proponents of incomes policy were advocating more direct government intervention in wage and price decisions.

With his background in international economics, it is not surprising that Haberler was a leader in emphasizing international dimensions of domestic macroeconomic policy and highlighting the importance of macroeconomic stability in the United States for global economic stability. He is far from dogmatic on exchange rate issues. He was one of the key contributors (along with Milton Friedman) to the postwar reevaluation of exchange rate regimes by international monetary economists that led to support for flexible exchange rates. His primary emphasis is on the need for consistency between domestic macroeconomic conditions and policies and the exchange rate regime. He is skeptical of popular arguments that flexible exchange rates cause inflation and was one of the first to raise the possibility that a depreciating exchange rate might do as much to discipline domestic macroeconomic authorities as a loss of international reserves under pegged exchange rates.

In his later years, Haberler no longer did technical research, but he kept up with the latest developments in his fields and often offered cogent criticisms. Drawing on his immense knowledge of both the development of theory and its use in policy applications he frequently presented politely worded, but intellectually devastating perspectives on the latest theoretical developments which claimed undue novelty and/or overlooked basic truths. For examples, see his essays in this volume on “Rational Expectations” and “Strategic Trade Policy and the New International Economics: A Critical Analysis.”

On development policy issues, Haberler was a firm critic of the views of those who were extremely pessimistic about the development prospects of low income economies and argued that a special economics needed to be developed for the analysis of these economies. For Haberler there was “only one economics,” but one that needed to be applied thoughtfully, taking into account the possibilities of differences in circumstances between countries and across time. It is gratifying that he lived to see his once lonely call for liberal trade policies in developing countries eventually become widely accepted by development economists and over the past decade by many governments in the developing countries.

Haberler is one of those rare writers of English who learned it as an adult but mastered it so completely that he serves as an exemplar to writers whose birth language is English.⁵ Joseph Conrad and Vladimir Nabokov are other examples. Nabokov can stun the reader with his sharp, pictorial images and immense vocabulary. Haberler writes with simplicity and spareness that make clear his powerful thoughts in debates where little seems clear.⁶

A brief biography helps put these essays into perspective. John Chipman writes in his biography of Haberler:⁷

Gottfried Haberler was born on 20 July 1900 in Purkersdorf, near Vienna. He studied economics at the University of Vienna under Friedrich von Wieser and Ludwig von Mises, where he received doctorates in law (1923) and economics (1925). After two years in the United States and Britain he returned to Vienna, received his habilitation in 1928, and was appointed lecturer, later Professor of Economics, at the University of Vienna, from 1928 to 1936. He was appointed professor at Harvard University in 1936 where he remained until his retirement in 1971. Since that time he has been a resident scholar at the American Enterprise Institute, Washington, D.C. He was President of the International Economic Association (1950-51), the National Bureau of Economic Research (1955) and the American Economic Association (1963). In 1980 he was awarded the Antonio Feltrinelli prize.

Some Appreciations

We cannot conclude this introduction without offering a few brief comments about Haberler the person. For all of his greatness as an economist, Haberler was first and foremost a wonderful human being. His many friends have views that span the range of non-Marxist economic and policy views. His friends know his views and when their views differ from his. His wide circle arose and continued because he was a gentleman who believed that critical comments could be presented in a civil manner, because he was humble in his views and open to change, and because he differentiated between bad ideas and bad people. He was always on the lookout to give younger scholars a helping hand. We are fortunate to have had the opportunity to be befriended by him and hope that this collection of essays will provide a much broader group some exposure to his approach to doing economics and analyzing policy.

Max Corden in a comment which concludes this volume assesses Haberler’s career as a development economist. He notes that “Haberler is not a development economist as this term is usually understood.” But his work is highly relevant to the developing economies.

Indirectly, his contributions to trade theory have probably bad a greater effect on their policies and the analysis of their policies, than the contributions of some of [those conventionally understood to be development pioneers…. He] sorted out (and usually demolished) many arguments for protection. Another important contribution is that … immobilities of factors of production … do not affect the case for free trade, but factor price rigidities do…. Many of the criticisms he made seem obvious today, but it is worth noting that Haberler was right at the time, not afterwards…. In effect, Haberler was a precursor, who kept the free market or liberalii.ation flame alight. Now, when one rerereads him, one finds much that is obvious, quite moderate, and close to the mainstream. In assessing him, one should assess the whole of this school of thought and its battles with the protectionists.

Some vignettes give a sense of him. A letter from his sister written in November 1994 and translated from the German:

Dear Gottfried,

My thoughts are often about you and especially on November 8th, the day commemorating your name. This day in our childhood and youth was almost celebrated like a birthday. Maria always made something special for dinner and there were small presents. I always think on these episodes.

I remember when you were attending the Schotten Gymnasium (high school) and that you were thrown out because you said die Reichspost, the clerical daily newspaper, was like a piece of trash. Poppa was called to school and told about your bad activities, and Momma was shaking from fear over what had happened. When Poppa came home he just sat himself down on a chair and made a kick as a sign you bad been kicked out of school. Then you went to the Döblinger Gymnasium (high school) and you were one of the best students.

I also think about the time Poppa was close to dying and was in his death bed, be said quietly to Momma and me that something very special is going to come of Gottfried.

I think we have done much to make our parents proud and that our offshoots can continue on.

After a bot summer we have beautiful fall days with splendid color and I am enjoying this very much on my walks.

Take care dear Gottfried and be warmly embraced.

Maria

Greetings from Priska.

From Robert Solomon:⁸

Although...

Table of contents

• Cover
• Half Title
• Series Page
• Title Page
• Copyright Page
• Contents
• Acknowledgments
• 1 Introduction
• 2 An Overview or Economic Policy: “A Positive Program for a Benevolent and Enlightened Dictator”
• 3 Domestic Macroeconomic Policy
• 4 International Dimensions of Macroeconomic Policy
• 5 International Monetary Issues
• 6 Trade and Development Policy
• About the Book and Editors
• Index