Gottfried Haberler · 1936
Haberler’s 1936 English translation of his 1933 German treatise is a systematic monograph on international trade theory and commercial policy. Its central move is to absorb international trade into general price theory, rejecting the idea that foreign trade requires a separate set of principles. The book moves from the foreign-exchange market and balance-of-payments adjustment, through comparative cost recast in opportunity-cost terms, to the analysis of tariffs, quotas, and other trade-policy interventions.
The theory of international trade has to be regarded as a particular application of general economic theory.
This premise governs the work’s structure. Haberler treats exchange rates, payments balances, commodity movements, and factor allocation as parts of one interdependent system. He therefore resists doctrines that treat the balance of payments as an autonomous magnitude or trade as a mechanical accounting problem. Foreign exchange is instead a price formed in markets:
The exchange rate between the means of payment of two countries is determined, like all other prices, by supply and demand.
From this standpoint, monetary explanations of trade must be dynamic and price-theoretic. Haberler criticizes theories that begin from a predetermined “balance” and then explain exchange rates as if they merely accommodated it. That reverses causality and ignores how prices, incomes, and quantities respond to each other.
The fatal weakness of this theory is that it assumes the balance of payments to be a fixed quantity.
The book’s most important theoretical contribution is its reconstruction of comparative advantage without the labour theory of value. Haberler preserves the Ricardian insight that trade depends on relative costs, not absolute productivity, but redefines costs as alternative opportunities sacrificed. This permits comparative-cost theory to handle many goods, multiple factors, factor specificity, money costs, and marginal productivity.
It is now obvious that we have no further need of the Labour Theory of Value.
This shift is not merely technical. It changes the meaning of “cost” in trade policy debates. Losses attached to particular firms or forms of capital are not identical with losses to the national economy if labour and other resources can be reallocated to more valuable uses. Haberler’s treatment of obsolete capital is especially severe: policy should not preserve past investments when future production can be better organized elsewhere.
But in economic affairs bygones are bygones; and, in the circumstances which we are assuming, the best utilisation of the community’s resources in the future involves closing down the factory.
The later policy analysis follows from this general-equilibrium reasoning. Protection is evaluated not by the visible survival of protected industries but by the hidden diversion of resources, the changes in relative prices, and the costs imposed on consumers and exporting sectors. Haberler is especially hostile to quantitative restrictions because they suppress the price mechanism more directly than ordinary tariffs.
The fixing of import quotas, like the fixing of maximum prices, is an interference with the price-mechanism which is alien to the price-system.
His objection to quotas is not only that they restrict imports, but that they do so unpredictably. As conditions change, a fixed quota becomes more or less restrictive without any transparent adjustment in the legal measure itself. It therefore creates uncertainty and arbitrary privilege.
This indirect preference given to home production is more dangerous than an import duty of corresponding height, for it rapidly changes its nature in an unpredictable manner, thus introducing an injurious uncertainty into the economy.
Tariffs are also burdensome, but Haberler’s emphasis is careful: the economic injury lies in raising barriers and distorting production, not in their removal. This reverses protectionist rhetoric that treats tariff reductions as sacrifices and tariff increases as gains.
It is the increase and not the reduction of duties which is the real economic burden!
The work’s lasting relevance lies in this integration of pure trade theory, monetary adjustment, and policy analysis. Haberler translates classical comparative advantage into modern opportunity-cost language and uses it to expose the costs of protectionism, especially non-tariff restrictions. The book is thus both a theoretical bridge—from Ricardo to general-equilibrium trade theory—and a sustained argument that commercial policy must be judged by its system-wide effects rather than by the fortunes of particular protected interests.
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