Gottfried Haberler · 1965
Haberler’s pamphlet is a mid-Bretton Woods intervention against two opposite positions: returning to gold as monetary discipline and treating reserve creation as a substitute for adjustment. Written amid De Gaulle’s challenge to the dollar, Rueff’s gold-standard revivalism, Triffin’s liquidity warnings, and the 1964–65 sterling crisis, it argues that monetary institutions must be judged by how well they preserve trade, convertibility, employment, and price stability.
Today, in “the Age of Inflation,” a doubling of the price of gold is entirely out of place.
The opening conceptual move is to make money instrumental rather than sacred. Haberler treats money, domestically and internationally, as machinery for coordinating exchange; when it breaks down, the result may be inflation, depression, or the repressed inflation of controls. International monetary order is valuable because it supports the division of labor, not because fixed parities or gold have intrinsic authority.
The basic function of the international money mechanism is to facilitate and promote the international exchange of goods and the division of labour.
The work then clarifies balance-of-payments language. Accounts always balance statistically; disequilibrium appears only after one distinguishes autonomous transactions from accommodating finance. Haberler insists that this distinction is indispensable but not exact, especially in the modern dollar system, where official financing, short-term capital flows, military prepayments, and reserve liabilities blur categories.
the dividing line between ‘autonomous’ and ‘accommodating’ transactions is often somewhat hazy.
His account of disequilibrium gives primacy to monetary and wage-cost causes without denying non-monetary shocks. Persistent deficits usually reflect inflation or wage increases beyond productivity; persistent surpluses reflect discipline as much as economic dynamism. Growth by itself does not guarantee external strength: what matters is how it is financed and whether costs remain internationally competitive.
The central chapter shifts the debate from liquidity to adjustment. Haberler contrasts market methods—gold-standard adjustment or exchange-rate movement—with non-market devices such as quotas, exchange control, capital restrictions, tourist limits, subsidies, and import surcharges. The latter sacrifice trade to defend a monetary form; the former preserve the international division of labor.
The adjustment problem is basic.
His most important policy argument concerns wage rigidity. If wages were fully flexible, fixed and flexible exchange systems would converge in effect. But with modern downward wage rigidity, fixed exchange rates create an inflationary bias: surplus countries must absorb adjustment through rising prices, while deficit countries resist wage cuts. The adjustable peg is still worse because it invites one-way speculation before expected devaluation. Haberler therefore treats exchange-rate flexibility not as ideology but as technique.
The upshot of all this is that the choice between fixed exchanges and flexible exchanges is a technical matter
This does not make him an unqualified advocate of floating. Flexible rates reduce pressure for deflation in deficit countries and inflation in surplus countries, but they may weaken the anti-inflationary discipline supplied by reserve losses. His practical preference is for limited flexibility: wider gold points, occasional but not frequent parity changes, and freedom for non-reserve-currency countries to float when appropriate.
The final third attacks the claim that international liquidity was already scarce. Haberler distinguishes a gradual future rise in reserve needs from sudden crises caused by capital flight. The first may someday require cautious reform within or near the IMF framework; the second should be met conditionally and ad hoc, as in the Italian and British crises. He rejects analogies to the 1930s, arguing that the Depression was mainly a catastrophe of internal deflation and bad policy, not simply a shortage of reserves.
International liquidity is not scarce now and has not been scarce at any time since the war
For Haberler, reserves must reassure but also discipline. If liquidity becomes automatic and abundant, governments may postpone wage restraint, budget correction, anti-inflationary policy, or exchange-rate adjustment. Hence his paradoxical principle:
liquidity must not only be sufficient but must also be capable of running out
The conclusion is reformist but conservative. The IMF has served the postwar expansion of trade well; cautious quota increases, conditional lending, and consultation are preferable to grand schemes for automatic reserve creation or to democratizing the Fund into a monetary version of the United Nations.
No radical overhaul is necessary.
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