Survey of Circumstances Affecting the Location of Production and International Trade as Analysed in the Theoretical Literature

This file is a single-author survey essay from a Nobel Symposium proceedings volume, with two appendices and scholarly notes. Haberler’s subject is the theoretical literature on the location of production and the pattern of international trade. His main thesis is that trade theory has been weakened by artificial oppositions—Ricardo versus Heckscher-Ohlin, theory versus empirics, factor proportions versus technology. Properly read, the tradition is continuous and plural.

I say this not in order to make the point that Ricardo said everything, but merely to stress the continuity of the theoretical development from Ricardo via Mill and Marshall to Heckscher, Ohlin and Samuelson.

The opening move is historiographical and conceptual. Ricardo should not be defended through the labor theory of value; he should be reinterpreted through opportunity cost inside a general price system. That move dissolves the old separation between international trade theory and ordinary value theory, a merger Haberler attributes decisively to Ohlin.

The general price theory and the theory of international trade have gradually been merged and the merger has been explicitly and definitively accomplished in Ohlin's Interregional and International trade.

The second section attacks the textbook narrowing of Heckscher-Ohlin into a two-factor capital-labor model. Haberler praises its elegance as a pedagogical device, but insists that it misrepresents the richer many-factor logic of Heckscher and Ohlin.

The two-factor assumption especially deviates sharply from the original Heckscher-Ohlin theory.

This reframes both the Stolper-Samuelson and Rybczynski theorems and the Leontief paradox. If labor and capital are treated as homogeneous aggregates, Leontief’s finding appears shocking; if labor skills, human capital, resources, entrepreneurship, and technology are admitted, it becomes a reason to refine the theory rather than abandon it. The same caution applies to factor-price equalization.

Also the famous theorem of factor price equalisation through free commodity trade has to be severely qualified, if there are many factors.

Haberler then restores “natural resource trade” to theoretical importance. Oil, tin, coffee, wine, climate, land quality, and mineral deposits may seem too obvious to theorize, yet their heterogeneity undermines simple production-function assumptions and neat claims about equalization or income distribution.

No sophisticated theory is required to explain why Kuwait exports oil, Bolivia tin, Brazil coffee and Portugal wine.

Manufactured goods require a denser account. Haberler surveys research on skills, R&D, technological gaps, product cycles, product differentiation, and increasing returns, treating these not as rivals to comparative advantage but as overlapping extensions of it. He stresses that much recent work unknowingly revives older insights in Taussig, Marshall, and especially Schumpeter.

By now any reader who is moderately versed in the recent history of economics will realise: All this is pure Schumpeter.

His treatment of the product cycle is historical as well as theoretical: innovation begins near a home market, uses skilled labor and feedback, diffuses as production standardizes, and may eventually shift abroad. Scale economies and market size explain cases such as aircraft, bearings, and other specialized manufactures. Haberler’s confidence lies less in statistical decomposition than in market discovery.

But the actors in the market, private producers and dealers, know what they are doing.

The conclusion rejects a single predictive theory of trade patterns. Haberler’s preferred image is a disciplined pluralism.

The picture which emerges is that of a mosaic of interrelated, overlapping and occasionally conflicting theories and models, each applicable to certain situations.

Yet this pluralism is not anti-theoretical. General equilibrium remains indispensable as an ideal type: it clarifies competitive allocation, welfare gains, shadow prices, and deviations caused by monopoly, policy, externalities, public procurement, or factor immobility. The appendices extend the argument: Appendix A shows Marshall anticipating technology transfer and product-cycle analysis; Appendix B argues that the public sector and national procurement can blunt the trade-expanding effects of cheaper transport and communication. The essay’s continuing relevance lies in that balance: it resists narrow empirical “tests” of grand theories while preserving theory as the framework for interpreting a changing international allocation of economic activity.