Tuesday 16 May 1995
They mostly lived long enough to earn the poetic justice of seeing their thinking applied in almost every continent. And they have left a legacy of younger economists - men and women, mainly in the United States, but also in British and other European universities, refining their thinking and applying it to the developing countries of Asia, South America and Africa. The ''Austrians'' have seen off the Marxists, sobered the Keynesians and humbled social democrats - all have accepted the market as indispensable to a wealth-creating economy.
Haberler's ''Austrian'' thinking began at the University of Vienna. The ''school'' originated with Carl Menger in the 1870s and blossomed in our day with two world scholars. Ludwig Mises demonstrated in 1921 the sheer unreality of Russian socialism without a market (and its mortality with one). And the naturalised British Frederick (Friedrich) Hayek (the forename he preferred when the Queen conferred the Companion of Honour in 1985), brought to the London School of Economics by Lionel Robbins, established the indispensability of prices as the information without which an economy was blind. The ''Austrian'' school in effect destroyed the pretence of government and politicians to be protectors of economic life.
Haberler closely followed, in his writings over 60 years, this fundamental theme - ''methodological individualism'', which analyses all human conduct, in private and collective (including governmental) activity, by personal instincts, judgements and decisions. This approach has reinforced the latest development in economics since 1957 which studies government, its bureaucracy, the political process that elects it and democracy itself as the work of individuals with the same personal horizons as in private economic life, and reaches conclusions different from the conventional study of politics as the work of people moved solely by ''the public interest''.
From 1928 Haberler taught for eight years at the University of Vienna, which he left before the arrival of Hitler for the academic freedom of Harvard, where he taught for 35 years to 1971. He spent his final working years at the Washington American Enterprise Institute, known as a ''free- market think-tank'' after its prototype, the London Institute of Economic Affairs. He confided in the early 1970s, when I was studying American health financing and efficiency, that his writings were sent free to the denizens of Capitol Hill (the Senators and Representatives in Congress) rather than sold to academics as were the papers of the IEA.
Haberler's writings invariably led economists to reconsider their thinking. His first important treatise, published when he was 27, analysed index numbers of prices in the Austrian manner: the true change in the price level was the ratio of the money incomes at two points in time that individual's subjective valuations saw as equal. In 1930, at the age of 30, his study of comparative costs in international trade, which interpreted costs as the opportunities forgone, another Austrian concept, replaced David Ricardo's almost Marxist theory of value as decided by the units of power used in production. With later writings on international trade, it vindicated free trade between sovereign nation states.
Another early work, Prosperity and Depression, published by the League of Nations in 1934, had a strong effect on economic thinking in my early years at the London School of Economics, then in the throes of debate about the booms and slumps of the ''trade cycle''. An early edition criticised a Keynes notion (the ''liquidity trap'') and was developed by A.C. Pigou, a classical Cambridge critic of Keynes.
Haberler's reservation about Keynes's advocacy of the government control of investment continued when he moved to Harvard. He persisted in his conclusions on the superiority of free markets over government intervention in so-called ''planned'' economies and on the advantages of free trade for the developing countries.
He spent some time as a young man in England in 1926-28 and resumed his British connection through the Institute of Economic Affairs. In two papers in 1965-69 and 1972 he demonstrated solutions to problems that now seem far away in the low-inflation recent years but could return if moderate inflation were seen as the myopic way to higher public expenditure or faster economic growth.
In Money in the International Economy (1965), soon after the vain British attempt of the Wilson government to control imports or capital flows, he concluded that such discriminatory political controls were inferior to non-discriminatory market controls by fixed exchanges under gold or similar standards. In 1969, after a session as Chairman of President Nixon's Task Force on US Balance of Payments Policies, he produced a second edition which reinforced his objections to political controls precisely because they made life too easy for politicians unwilling to resist pressures for full employment from vested interests like trade unions.
And in Inflation and the Unions (1972), during the vain Heath Government incomes policy designed to resist inflation, he argued that monetary measures were not sufficient to prevent inflation caused by non-monetary influences like the strong trade unions of the late 1960s. Such timeless teaching was Haberler's trade-mark.
Haberler was a tall man with a gentle manner and a rather dreamy voice who never lost his image as ''Herr Doktor Professor''.
It was typical of his style that, at a conference in Montreux of the Mont Pelerin Society, the liberal international of scholars and writers, he should temperately reconcile differences I was having with another member on monetary policies. Gottfried Haberler is an object lesson for young scholars.
Gottfried Haberler, economist: born Purkersdorf, Austria 20 July 1900; Lecturer, then Professor of Economics and Statistics, University of Vienna 1928-36; Professor of International Trade, Harvard University 1936-71; married; died Washington 6 May 1995.
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