The archive.

Why do socialist economies, for all their proclaimed internationalism, trade so little and so cautiously? Haberler's answer, offered as candid speculations of a theorist, is that comparative cost identifies gains from trade but never realizes them; someone must go looking. Marginal analysis and shadow pricing can aid socialist calculation, yet they cannot supply the entrepreneurial discovery that foreign markets demand: unfamiliar demand, currency risk, contractual hazard, the real possibility of loss. Private merchants chase profit across borders; plan-bound managers, rewarded for fulfilment and punished for failure, stay inward-looking and nationalistic. The predicted result is trade aversion and undertrading, volumes far below the comparative-cost optimum, together with bilateralism, barter, and imports confined to unavoidable necessities. It is comparative advantage recast from a static doctrine into an institutional argument.

Nationalism has proved to be an extremely hardy plant.

A uniform tax on all imports plus an equal subsidy on all exports is, for commodity trade, identical to a currency devaluation, an equivalence Haberler accepts as an analytical benchmark and then spends the chapter refusing as policy. The device breaks the moment it meets institutions: it omits services and tourism, invites exemptions, and never stays uniform, sliding toward commodity-by-commodity and country-by-country discrimination and, eventually, exchange control. On the microeconomic side he wields Ricardo to reject the GATT distinction between border-adjustable indirect taxes and non-adjustable direct ones; what matters is whether a tax alters relative costs, not whether it is nominally shifted. Tracing the idea from Keynes's 1931 tariff-and-bounty proposal through Hicks, Triffin, and European VAT practice, he concludes that a valid model equivalence is no sound recommendation.

I conclude that the border tax on imports and tax refund on exports is an inferior, messy, wasteful, and inefficient substitute for exchange-rate adjustments.

Record American deficits piled up through the late 1960s, yet confidence in the dollar held—a puzzle Haberler and Willett resolve by arguing that the world had drifted onto a de facto dollar standard in which the currency was inconvertible into gold for large official sums, and that the very gap between the gold stock and dollar liabilities made mass conversion unthinkable. From this they draw the case for what they call benign neglect: because the United States cannot unilaterally devalue a currency everyone else pegs to, it should pursue domestic stability and curb inflation while leaving adjustment to surplus countries, which may accumulate dollars, appreciate, expand, or lower trade barriers. Written just before the August 1971 suspension of convertibility, the essay presses for modest exchange-rate flexibility—crawling pegs, wider bands, floating—over the distortions of capital and trade controls.

whenever a serious dilemma or conflict between the requirements of external and internal equilibrium arises, domestic policy objectives should take precedence over balance-of-payments considerations

Ninety days of frozen wages and prices gave Nixon's New Economic Policy of August 1971 its drama, but Haberler asks the harder question of what happens once the freeze is lifted. A freeze, he warns, suspends visible price changes without touching demand, wage bargaining, or credibility; hold it too long and it breeds evasion, bureaucracy, and corruption. The essay's hinge is a distinction between two incomes policies: guideposts and controls that substitute official judgment for the market, and reforms that restore competition by curbing union privileges, revising Davis-Bacon and minimum-wage rules, ending strike subsidies, and opening the door to imports. Sustained inflation, he holds, is always monetary, yet monopoly unions can still force authorities to choose between validating wage push and accepting unemployment. Business monopoly, by contrast, produces mostly one-shot effects and matters far less to a continuing spiral.

Industrial monopolies or oligopolies are not much of a problem as far as inflation is concerned.

Aid to poor countries is laudable; producing it by attaching international reserve creation to development finance is not. That is the disciplined case Haberler mounts against the "Link" between IMF special drawing rights and assistance to less developed countries. Reserve allocation answers to payments, trade variability, and liquidity, he argues, while aid answers to income, wealth, and welfare; fusing the two would rationalize neither and turn every SDR decision into a distributive struggle. The Link is inherently inflationary, since reserves allocated for development are designed to be spent, and even the subtler non-inflationary version proposed by Karlik and Scitovsky would yield little. Aid should instead be voted openly through the budget, its burden made explicit rather than scattered by IMF quotas and balance-of-payments accidents - a tax lottery in place of a tax system.

This argument again mixes reserves and aid.

When Washington suspended the dollar's convertibility into gold in August 1971, it exposed how deeply American inflation had become the world's problem, the theme of this 1973 essay, collected in Haberler's volume on inflation and business cycles. Because the dollar served as reserve and intervention currency, U.S. price rises under Vietnam and Great Society financing were transmitted abroad in amplified form, forcing Germany, Switzerland, and Austria to resist inflation they had not created. Haberler distinguishes a pure dollar crisis from a mark or yen crisis, locates the fundamental defect in the adjustable peg, and defends greater exchange-rate flexibility through managed floating. Only domestic monetary restraint, he insists, can end inflation itself, but floating spares the system disruptive one-way speculation.

But let me repeat, the compulsion to submit to imported inflation arises only under a regime of fixed exchanges and convertibility.

When the Bretton Woods system broke down in 1973, the pressing question was not which technical rule to adopt but why fixed parities had failed at all. Haberler's diagnosis is unsparing: under modern democratic conditions any fixed-rate regime, a resurrected gold standard included, carries an inflationary bias, because governments will not accept the deflation that adjustment requires. Agreeing with Otmar Emminger against gold-standard nostalgics, he argues that correction must then run through inflation in surplus countries, exchange controls, or repeated parity changes, and that the adjustable peg only invites one-way speculation. His remedy is managed floating, sharply distinguished from the 'dirty' floating of split markets and multiple rates. Rereading the competitive devaluations of the 1930s as products of rigidity rather than flexibility, he urges the IMF to police clean floating instead of resurrecting the par-value system.

Floating is here to stay even if a misguided attempt is made to return to “stable but adjustable” parities.

Nairobi settled nothing, and for Haberler that was no calamity. The Committee of Twenty still chased a negotiated return to stable-but-adjustable par values, yet the working system was already one of floating currencies, and world trade had gone on growing beneath the improvisation. His argument hinges on a distinction officials blurred: asset convertibility, turning official balances into gold or SDRs, matters far less to commerce than ordinary market convertibility among currencies, which floating preserved. Restoring dollar convertibility, he insists, would not supply the discipline its advocates want, since the real obstacle is that governments refuse deflation for the sake of external balance. Against Giscard d'Estaing's charge that floating neither halts inflation nor yields true market rates, Haberler answers that flexible rates are a necessary shield for any country determined to stay out of the world's inflation.

If any country wishes to stay out of the world inflation, floating is a necessary but not sufficient condition.

Against the postwar faith in fiscal fine-tuning, Haberler binds together three things usually treated separately: economic growth, monetary stability, and personal freedom. Growth matters, he argues, because it widens the practical range of human choice, but the institutions that generate it demand discipline rather than activist management. Severe depressions, he judges, have become largely avoidable, so the live danger is now creeping inflation, and here his reassessment of the Phillips curve does the analytical work. Phillips's own mechanism, he notes, was demand-pull, not cost-push; any apparent trade-off between inflation and unemployment holds only while rising prices go unanticipated, and dissolves once expectations catch up. Set within a classical-liberal frame that reaches from the Club of Rome's Limits to Growth to wage-push unionism, the book narrows what stabilization policy can honestly promise: no durable bargain between jobs and inflation exists.

It is probably no exaggeration to say that severe depressions are a thing of the past.

Writing after the 1973 oil embargo and OPEC's cartel price rise had transformed the monetary scene, Haberler sets out to calm the panic rather than amplify it. The oil shock, he grants, imposes a real transfer of purchasing power from the industrial world to the producers, but a large transfer is not an insoluble monetary crisis. Treated as a single bloc, the importing countries could bear it while output still expanded; the genuine difficulty is distributional, since exporters' spending and investment will not match each nation's oil bill, and exchange rates must apportion the adjustment. Because no authority can compute the correct new parities, floating is the least bad response to uncertainty. France's decision to let the franc float confirms the lesson, and he cautions Washington to welcome dollar appreciation rather than retaliate with tariffs or quotas.

If they keep their money in liquid form (fail to spend it), it is up to monetary management in the importing countries to neutralize a possible deflationary effect.

Did OPEC's quadrupling of crude prices really cause the stagflation of the mid-1970s? Haberler's answer, developed as the lead paper of this symposium, is a firm no: the oil shock was costly but not the master cause. Dearer oil imposes a terms-of-trade loss that a flexible economy would absorb through a once-for-all fall in real income; only downward-rigid money wages convert it into unemployment or inflation. The shock, he argues, struck an economy already destabilized by an unsustainable boom. On the international side he deflates fears of the 'petrodollar,' since OPEC surpluses must return as purchases or investment and the Euro-dollar market had already recycled them. Rejecting official schemes that quarantine oil deficits from the rest, he insists each country confront its overall balance of payments through floating, IMF borrowing, or domestic monetary and fiscal measures.

The oil price rise was not a major factor in bringing on inflation and recession.

Stagflation, rapid inflation coexisting with substantial unemployment over a considerable period, was not supposed to happen, and the 1974-75 recession, the first worldwide postwar slump, made the anomaly impossible to ignore. Haberler treats it not as a natural feature of competitive markets but as the symptom of institutional obstruction: downward wage rigidity, union bargaining, indexation, farm supports, and regulation prevent relative prices from adjusting. Special factors like the oil and food shocks, he calculates, explain perhaps a fourth of the two-digit inflation; the rest is real-wage resistance by organized groups. His prescription is structural reform to enlarge competition, dismantling marketing orders, Davis-Bacon rules, the Buy American Act, and minimum-wage laws that price out the young, rather than incomes policy or election-year stimulus, which would only reignite inflation and invite the wage-price controls that lead toward rationing and planning.

The policy dilemma of stagflation is this: If macroeconomic monetary and fiscal policies try to counteract inflation, they increase unemployment; if they try to reduce unemployment they intensify inflation.