Transfer and Price Movements; Transfer and Price Movements: A Rejoinder to Bertil Ohlin

This file is a two-part translated intervention: Gottfried Haberler’s 1930 article on the transfer problem, followed by his 1931 rejoinder to Bertil Ohlin. Its scope is the Keynes–Ohlin debate over reparations and unilateral international payments, especially whether such payments require changes in relative prices or can occur through purchasing-power shifts alone.

There is really only one point on which this demonstration causes serious differences of opinion, namely the part played by price movements that is necessary to carry out the transfer.

Haberler’s central position is intermediate but pointed. Against Ohlin’s Ricardian tendency to minimize price changes, he argues that transfers usually need some relative price adjustment to create an export surplus in money terms, not merely in physical volume. Against Keynes, however, he denies that this necessarily means a serious deterioration in Germany’s terms of trade.

The Thornton-Mill theory seems to me to be clearly preferable: a price movement is almost always required to induce the necessary export surplus.

The article proceeds by limiting cases. At one extreme, recipients spend the transfer on exactly the goods the paying country would otherwise have bought, and no transfer problem appears. At the other, a country can expand only a narrow range of exports and faces inelastic foreign demand. Then the needed export surplus cannot be generated by price cuts.

In these circumstances the transfer is clearly impossible. The surplus in the value of exports is simply unattainable.

Haberler accepts Keynes’s theoretical warning: if export demand is insufficiently elastic, the transfer can impose an additional burden through worsened terms of trade. But he sharpens the issue by distinguishing the domestic budgetary problem of raising the funds from the international transfer problem of converting them into a trade surplus.

His most important conceptual move is to reject the assumption, common among Keynes, Pigou, Taussig, and others, that the payor’s terms of trade must worsen. Everything depends on which demands contract and which expand. If the payor cuts imports and the recipient buys the payor’s exports, the transfer may even improve the payor’s position.

Nevertheless, this is wrong, and the reverse case, i.e. that the terms will turn in favor of the payor country, is perfectly conceivable.

Thus Haberler’s theory is deliberately conditional. It replaces a single “law” of transfer with a comparative analysis of demand composition, elasticities, and production conditions.

The transfer will succeed, or in the limiting case it will not; it may or may not be accompanied by price movements, and the real terms of trade may turn in favor of or against the payor country.

Applied to Germany, this yields Haberler’s famous compromise judgment: Keynes identifies a real theoretical possibility, but exaggerates its practical likelihood. Germany’s many actual and potential exports, its small share in world markets, and its competition with foreign producers make a catastrophically inelastic demand situation improbable.

One could say, therefore, that Keynes was right in theory but his opponents in practice.

The rejoinder to Ohlin narrows the disagreement. Haberler concedes that Ohlin rightly stresses demand shifts, but insists that the decisive question remains how resources are redirected into export industries. Unless the “right” demand curves shift in just the required way, relative price movements must do the work.

The decisive point is, however, by what price shifts this reordering of production is brought about.

The rejoinder also clarifies method. Haberler criticizes careless use of elasticity when transfers themselves shift demand curves, yet he refuses to replace partial analysis with a purely formal general equilibrium scheme. For practical economics, one must trace the sequence of adjustments.

In any concrete case there is no other approach than to analyze the various reactions step by step as they unfold in reality—up to the final equilibrium position which will certainly not be reached suddenly, and of which one cannot ever say whether it will be attained after a finite number of moves.

The relevance of the piece lies in this methodological moderation. Haberler preserves the classical transfer problem as a real-price and resource-allocation problem, rejects both mechanical purchasing-power conservation and automatic terms-of-trade pessimism, and turns the reparations debate into an inquiry about concrete elasticities, spending patterns, and adjustment paths.