Gottfried Haberler, Recovery Policies in Democratic Countries (1939)

Haberler’s condensed round-table statement examines how democratic governments can promote recovery and sustain employment without surrendering consumer choice or imposing comprehensive economic regimentation. Its argument proceeds from problems of comparison, through differences in policy instruments, to a diagnosis of premature increases in wages and prices. The central claim is that democracies can learn from authoritarian techniques of cost control and the removal of productive bottlenecks without adopting authoritarian political objectives. Yet Haberler also questions whether democratic economies can attain and maintain employment as close to full employment as totalitarian states.

The opening establishes an asymmetry in the evidence: democratic countries supply more abundant statistics and interpretations, but their diversity makes generalization difficult. Differences divide not only Britain, France, and the United States but also apparently comparable smaller economies. Policies can vary even between Finland and Sweden, or Sweden and Denmark. Democratic recovery therefore cannot be treated as a single coherent experiment. Haberler asks whether any common features meaningfully distinguish the democratic group from totalitarian countries.

His next move is to separate measures of success. Germany appears superior when recovery is judged by reductions in unemployment, “real and apparent.” Its advantage narrows when measured by aggregate production, since Britain and Sweden have achieved increases almost as great. It narrows further when consumption excludes armaments. Economic welfare introduces leisure, consumer freedom, and freedom from regimentation, potentially reversing the ranking; stability, by contrast, favors Germany, which has escaped the recent slump affecting Britain and the United States. These distinctions prevent employment or output from serving as an uncomplicated verdict on an economic system.

The comparison of economic achievements in the two groups of countries leads to very different results according to the criteria which we adopt for measuring the success of recovery effort.

The choice of criterion is thus substantive, not merely statistical: producing more, consuming more, enjoying greater freedom, and avoiding cyclical disruption are different achievements. Even within a chosen measure, outcomes cannot establish policy effectiveness unless the difficulties confronting each country are considered. Haberler treats comparative performance as evidence requiring explanation, rather than a straightforward ranking of governments.

There can be no doubt that there exist great differences of the sort which make an objective comparison of the degree of recovery an unsafe measure for the efficiency of the recovery policy pursued.

The policy comparison begins with the generally lower intensity of government intervention in democracies. Haberler attributes this partly to slower decision-making, but also to different objectives: democratic governments are less willing to restrict consumer choice and more averse to regimentation. Their policies have also been influenced, in varying degrees, by economists of both conservative and radical orientations. These differences matter because the limits on intervention express political commitments as well as administrative constraints.

Monetary expansion provides less of a dividing line. Differences are chiefly of degree, and democracies may possess advantages through larger gold holdings and less immediate memories of inflation. Trade restrictions are generally less severe in democratic countries, although Haberler identifies a broad movement toward protectionism, with the United States as the exception. The decisive contrast emerges instead in labor policy and control of money costs. Totalitarian governments suppress wage and price increases, eliminate industrial conflict, increase labor mobility, and lengthen working time. In France and the United States, he finds opposing tendencies, including deliberate wage and price increases justified by a purchasing-power theory he rejects.

Haberler distinguishes two phases of German wage restraint. Initially, holding down wage rates—distinct from earnings or payrolls—assists recovery. Later, restraint enables the state to appropriate an increasing share of national income. Only the first phase supplies the relevant comparison for recovery policy. This distinction separates a proposed economic mechanism from the subsequent diversion of resources toward state purposes.

If an economic recovery, as soon as it starts, leads to a rise in prices, it is easy to see that it cannot go on very far.

The mechanism is a cumulative price rise that forces a damaging choice: monetary authorities either restrain threatened inflation and interrupt recovery, or permit an increasingly unsustainable inflationary process. Haberler identifies premature increases in money costs as a major explanation for failed recovery in France and, less strongly, the United States. Germany can sustain production because it combines restrained costs with enormous demand generated by armaments. Its employment performance consequently rests on both control over costs and a politically directed outlet for production.

Bottlenecks create a related obstacle. Totalitarian governments can compel labor transfers or regulate consumption, while democracies face constraints on both methods. Savings controls and the appropriation of profits add to the authoritarian arsenal against inflation. Haberler’s conclusion is nevertheless selective rather than a recommendation to reproduce that system.

It should, however, be feasible to avoid the danger of a premature price boom, which threatens to lead to inflation, by controlling money wages and prices and by more specific measures designed to eliminate or avoid bottlenecks.

The statement leaves the institutional design of such democratic controls unresolved. Its relevance lies in framing the problem precisely: recovery must be judged by welfare and freedom as well as employment, while expansion must confront cost increases and productive constraints. Haberler proposes learning from particular authoritarian economic techniques while retaining the democratic principles that make recovery valuable.