Alexander Mahr, “International economic integration and prosperity” — Summary

This academic economics article examines postwar trade liberalization as a problem of reciprocal integration, employment, and prosperity. Mahr’s scope is both theoretical and policy-oriented: he asks how mutual reductions of tariffs and other barriers alter exports, imports, investment demand, the balance of payments, and the feasible speed and scale of European or wider economic integration.

There is little doubt that there has been a change in the ideas governing foreign trade policy after the Second World War.

Mahr’s main thesis is that reciprocal liberalization, if broad enough and paced correctly, can raise national income without producing the depression feared by cautious policymakers. His first conceptual move is to reject both unilateral free-trade moralism and narrow protectionist retaliation. The postwar task is reciprocity: countries should dismantle protection together because foreign tariffs reduce the productivity of export industries and can justify moderate countermeasures only as second-best responses.

There should be a mutual abolition of protective measures.

The article then turns to the central objection to integration: industries sheltered by tariffs may contract before resources can move into more productive export sectors. Mahr accepts the political importance of full employment but argues that the transition problem is commonly overstated.

But I think there is a widespread tendency now to overestimate the difficulties which would result from a gradual abolition of protective measures for branches which are inherently inferior to foreign competition, as compared with the advantages for the economy as a whole.

His analysis proceeds by separating the opposing forces released by liberalization. Imports may rise where tariffs fall, domestic supply may be displaced, and countries with higher prior protection may suffer larger shocks. Yet exports also expand, and the direct trade balance is only part of the story.

Of course, the mutual removal of trade barriers affects business conditions and employment in two just opposite ways, the increase of exports exerting a favorable influence, the increase of imports an adverse influence.

The key innovation of the essay is Mahr’s insistence that transition analysis must include not only the foreign-trade multiplier but also the accelerator. Expanding export industries require machinery, buildings, and equipment; contracting protected industries reduce replacement demand, but this loss is smaller than the new investment generated by rapid expansion elsewhere.

But we have not yet taken into account a factor which has been generally overlooked in this connection, namely, the otherwise well known acceleration principle.

This is the core conceptual move: integration is not merely a reallocative shock but a dynamic stimulus to capital-goods industries. For Mahr, this mechanism explains why gradual but resolute liberalization may produce prosperity even where imports initially outpace exports.

Therefore the removal of trade barriers, if carried out not too slowly and faint-heartedly, will bestow prosperity upon the industries which produce investment goods.

The later sections refine this optimism. If one country begins with very high tariffs, liberalization may create exceptional strain; devaluation may then be preferable to letting falling prices and unemployment perform the whole adjustment. But Mahr’s more general warning concerns excessive speed. Too rapid integration could overstrain investment-goods capacity, raise prices, force credit expansion, and produce inflationary imbalance.

The pace of integration should therefore be adapted first of all to the development within the investment goods industries.

The article closes by distinguishing territorial extent from intensity. Very small customs unions may concentrate adjustment costs and limit gains, whereas broader unions distribute competition and enlarge opportunities for specialization. At the same time, deep unification of money, banking, and sovereignty will meet political resistance. Mahr therefore recommends a pragmatic path: continued reciprocal liberalization among OEEC countries, possible inner and outer circles of participation, and moderate exceptions where justified.

The predominating aim of such a movement towards a freer trade would be economic, it would be the aim to raise national income and the standard of life in all participating countries by a more rational foreign trade policy.

Its relevance lies in its early formulation of postwar integration as a managed macroeconomic transition, not simply a static free-trade argument. Mahr links reciprocity, employment policy, accelerator effects, balance-of-payments adjustment, and institutional realism into a case for integration as a route to prosperity.