Gottfried Haberler, “Real Cost, Money Cost and Comparative Advantage” / “Concluding Remarks”

This file is a proceedings contribution rather than a monograph: Haberler’s theoretical note is followed by ex-post concluding remarks to an International Economic Association round table. Together they argue that comparative advantage must be understood through money prices, opportunity costs, exchange-rate institutions, and welfare conditions—not through an inherited “real cost” doctrine.

Trade is proximately governed by money prices and money costs, including transportation costs and other transportation charges, all in terms of money.

Haberler begins by unsettling the claim that each country exports goods it could produce “more cheaply” before trade. Money comparisons require exchange rates, and multiple rates, clearing arrangements, barter, and inconvertibility obscure the monetary facts. Even with stable rates, autarky prices may not predict trade when scale economies and imperfect competition make production depend on whole cost and demand curves.

Real cost theory always had two functions (which the earlier theorists hardly distinguished), namely, an analytic and explanatory function on the one hand and a welfare or policy function on the other.

His core move is to deny that real cost can survive merely as welfare theory if it has failed as explanation. He rejects the Marshall-Viner line that relates prices to subjective disutility of labor and abstinence, and substitutes the opportunity-cost tradition.

The opportunity cost theory asserts that relative prices are proportional to the marginal opportunity cost, i.e., to the rate at which various commodities can be transformed into one another.

This supports free-trade conclusions only under restrictive conditions: competition, flexible prices, no external economies, and no relevant labor-market distortions. Haberler therefore rejects “naive” free trade while still resisting protectionism. Rigid wages, monopoly, externalities, or distributional aims may justify intervention in principle, but ordinary tariffs usually treat symptoms rather than sources.

The case for liberal trade policies should be based on the fact that although the ideal conditions postulated by competitive theory and the free trade doctrine are never realized, there is at least a rough approximation.

The first part culminates by absorbing comparative advantage into equilibrium theory rather than discarding it.

Summarizing, we may say that a fully elaborated general equilibrium theory contains the comparative cost theory as a special case.

The “Concluding Remarks” turn to postwar policy, especially the dollar shortage. Haberler contrasts pessimists, who see Europe’s deficit as chronic and structural, with optimists, his own camp, who see disequilibrium curable by policy. Both sides share the basic adjustment identity.

Optimists and pessimists agree on one thing: A deficit in the balance of payments can be eliminated only by an increase in exports of goods and services and/or a decrease in imports.

For Haberler, adjustment requires ending inflation, setting realistic exchange rates, avoiding U.S. depression, and keeping surplus-country markets open. Keynes’s failed optimism about sterling convertibility was, in this reading, not a refutation of “classical medicine” but a misjudgment of timing: sterling was overvalued and inflation persisted.

The major credit must, however, be given to devaluation and disinflation.

The final section analyzes discrimination. Haberler grants that terms-of-trade arguments for tariffs are theoretically respectable, but insists that retaliation, uncertain elasticities, special interests, and administrative complexity make rational discrimination unlikely. Quotas and exchange controls especially blur equal treatment; devaluation is preferable because it preserves relative international price equality more fully.

Non-discrimination like honesty still remains the best policy.

Taken together, the file presents a non-dogmatic liberal internationalism: comparative advantage is rescued through opportunity cost and general equilibrium; free trade is defended despite imperfections because discretionary intervention usually requires knowledge governments lack; and postwar balance-of-payments problems are treated as monetary and policy disequilibria rather than evidence of permanent structural decline.