Gottfried Haberler’s conference proceedings article assesses the prospects for restoring multilateral trade and currency convertibility after repeated postwar payments crises. Its seven sections move from a diagnosis of the “dollar shortage” through the costs of adjustment to proposals for reforming the International Monetary Fund and evaluating regional payments unions. Haberler distinguishes the survival of the Fund from the achievement of the economic principles it represents:
By Bretton Woods system I mean the principle of multilateral, non-discriminatory trade and convertible currencies of which the Articles of Agreements on the International Monetary Fund is one of the symbols and expressions.
Measured against those principles, the record is disappointing: exchange controls and quantitative restrictions persist, while liberalization has largely occurred within discriminatory regional arrangements. Yet Haberler rejects the inference that recurring crises demonstrate an incurable structural shortage of dollars. His central thesis is that convertibility is economically attainable, provided governments restrain inflation and permit realistic exchange rates. The principal obstacles are increasingly political and psychological: prolonged difficulties acquire normative authority, making contingent policy failures appear permanent economic necessities.
Sections II and III challenge pessimism through postwar developments. Production and exports have expanded, and American imports have grown in both value and volume. Renewed American export surpluses chiefly reflect rising foreign demand rather than collapsing American purchases. Haberler interprets this pattern as evidence of spending excesses and delayed adjustment abroad. The British crisis of 1951 required much less American assistance than earlier crises, while monetary restraint produced rapid improvements elsewhere. Relative movements in prices and wages also support his emphasis on inflation.
He nevertheless acknowledges that one country’s improved overall balance does not establish that the entire nondollar world can eliminate its dollar deficit. A restrained economy may export successfully to inflationary neighbors without improving its dollar earnings. His answer turns on the diversion of resources: protected regional markets and exports financed through blocked balances absorb goods that might otherwise reach dollar markets. Coordinated restraint has therefore not received a genuine test. Inflation in some countries can impair even the dollar positions of more disciplined trading partners.
Section IV states the underlying prescription:
The basic prescription is this: Let exchange rates find their equilibrium level, avoid inflation, and apply disinflationary policies.
This is not an unqualified recommendation for an immediate leap into unrestricted convertibility. Haberler recognizes the political impracticability of a radical solution, allows that gradualism may be preferable, and cautions against capital convertibility where political scares could provoke flight. He also distinguishes the unavoidable cost of adjustment from its contingent consequences. Without widespread unemployment, eliminating a deficit reduces domestic consumption and investment because more output must be exported or fewer imports remain available. This is the “primary burden.” Deteriorating terms of trade add a “secondary burden”; improving terms can instead yield a benefit.
That distinction organizes his criticism of “elasticity pessimism.” Devaluation may seem ineffective because governments permit renewed inflation rather than maintaining internal balance. Haberler regards the primary burden as generally tolerable and disputes the expectation that adverse terms-of-trade effects must make it prohibitive. His comparison with the interwar reparations debate exposes a reversal in pessimism: countries once thought unable to receive unilateral transfers are now considered unable to dispense with American aid. Inflation and employment conditions, rather than immutable trade elasticities, explain much of the contrast.
Section V translates this analysis into institutional reform. Bretton Woods planners, preoccupied with deflation and competitive depreciation, underestimated inflation and overvalued currencies. The Fund should scrutinize domestic monetary and fiscal policy more closely, reject unrealistic parities, and permit temporary floating rates without automatically withdrawing support. Lending could induce adjustment, with Bank loans likewise conditional on minimum financial discipline. Even untidy exchange practices may help reveal realistic currency values if they become steps toward general adjustment.
Section VI extends the argument from bilateral deficits to triangular settlement. Europe could earn dollars indirectly by exporting to Latin America and other raw-material producers that earn dollar surpluses from the United States. Inflation combined with rigid exchange rates obstructs this circuit by encouraging deficit countries to reserve dollar receipts for American purchases and demand bilateral balance elsewhere:
In other words, repressed inflation and overvalued currencies lead inescapably to bilateralism.
The final section weighs regional payments unions. Haberler distinguishes legitimate “structural” balances, arising from multilateral trade patterns, from “disequilibrium” balances caused by unequal inflation, overvaluation, or restrictions on dollar imports. Regional pools can spread the costs of undisciplined members and exclude necessary trading partners. Discrimination also sacrifices gains from the international division of labor:
The dollar gap can be eliminated without the use of discriminatory methods.
Nevertheless, regional arrangements may be defensible when political cooperation makes them preferable to greater bilateralism. Haberler concedes that the European Payments Union performed better than he expected, but attributes its moderate success principally to close consultation and corrective national policies, not automatic credit machinery. Its lesson for the Fund is selective support for countries already approaching convertibility:
The policy might be called the “strong currency approach” because efforts are concentrated on relatively strong (hard) currencies which are near convertibility.
The proposed group must be sizable enough to sustain broader settlement. Haberler thus ends with a qualified strategy for realizing Bretton Woods principles: build outward from financially disciplined countries rather than finance persistent disequilibrium indiscriminately. The article’s enduring conceptual contribution is to connect international payments arrangements to domestic policy and to distinguish economic feasibility from the political capacity to carry adjustment through.
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