Gottfried von Haberler (1900 - 1995)

Protectionism cannot be outwitted; it must be conquered

Gottfried von Haberler

The Austrian born economist Gottfried von Haberler (1900-1995) studied under F. von Wieser and L. von Mises in Vienna and was a member of the 4. generation of the Austrian School of Economics. After briefly teaching in Vienna, he joined the League of Nations in Geneva and in 1936, he was appointed Prof. of Economics at Harvard University. He soon became one of the most influential scholars of our time. After his retirement in 1971, he continued to work at the American Enterprise Institute. His most significant and seminal contributions to economic theory were his revolutionary reformulation of Ricardo’s established theory of international trade and his path-breaking works in business-cycle theory and monetary politics. G. von Haberler’s scientific oeuvre is characterized by a unique combination of clarity and depth. As a scholar he had grace, independence, wisdom and an incredible sense of humor. He was a citizen of the Principality of Liechtenstein.

Gottfried von Haberler was born on July 20, 1900 in Purkersdorf near Vienna into an old, traditional Austrian family of civil servants. Due to their great merits, his paternal ancestors were knighted by Austrian Emperor Franz Joseph I in 1854 and in 1873 by Prince Johann II von und zu Liechtenstein. G. von Haberler grew up in the intellectually vibrant and politically explosive culture of Vienna’s Fin de Siecle. This innovative period of time, in which Austrian scholars dominated in almost all academic fields, shaped his youth. However, the thunder of coming revolutions could hardly be overheard and the violent downfall of the huge Habsburg monarchy was already on the horizon. The moment he reached the age of eighteen, Haberler was drafted into the KuK Army, but only escaped service at the Italian front because of the armistice signed on Nov. 3, 1918.

Despite the disintegration of the empire after WWI, the loss of his society and the widespread starvation especially in Vienna, Haberler enrolled at the university in early 1919. Just about three years later, he completed his studies in political science and in 1925 he was awarded his law degree. From 1923 on, like his friends and future scholars, Herbert v. Fuerth (his later brother-in-law), F.A. v. Hayek, Fritz Machlup, Oskar Morgenstern, Felix Kaufmann, Eric Voegelin or Alfred Schuetz and many others, Haberler attended L.von Mises’ influential non-university seminar. In this private seminar Mises offered economists, philosophers, historians, sociologists or political scientists an intellectual home. From this unusual concentration of great talents, the 4th generation of the Austrian school emerged. However, due to the rapidly deteriorating political situation and the lack of prospects for an academic career, most of these young scientists left Austria. And when the catastrophic ‘brain drain’ reached its peak in the mid-1930s, Vienna finally ceased to be a world center of social science research and innovative ideas.

Haberler’s first book, Der Sinn der Indexzahlen. Eine Untersuchung über den Begriff des Preisniveaus und die Methoden seiner Messung (1927) was a theoretically pioneering achievement. Firmly resting on the monetary- and value theory of the Austrian school, he succeeded in proving the impossibility of aggregating individual goals and values ​​into macroeconomic or even social functions. His warning against misusing indexing or statistics to achieve political goals is particularly topical again today. The success of this work led to one of the much-sought-after Rockefeller grants, which enabled him to spend two years researching in the USA and England.

After his return, Gottfried von Haberler was awarded his ‘venia legendi’ at the University of Vienna, married and then went to Harvard University in 1931 and published there his second major book, The Theory of International Trade (German 1933, English 1937)  is considered a classic. Particularly influential was his reformulation of the theory of comparative costs in terms of opportunity cost. G.v. Haberler introduced the production substitution curve (now referred to as the production-possibility frontier), which offered a framework for considering. He succeeded here in breaking David Ricardo’s established theory of comparative costs. According to Haberler, the relevant costs in retail do not correspond to the working time that has to be used to produce interchangeable goods, but rather to the alternative option that has to be dispensed with. In 1934 von Haberler joined the finance department of the League of Nations in Geneva for two years, where he met his mentor Ludwig von Mises again. When the teachings of Lord Keynes seemed to dominate the theoretical field and protectionism the economic field, Haberler wrote his third major book, Prosperity and Depression (1937), yet another classic. Against Keynes’ theory of an equilibrium in underemployment, Haberler argued that if wages and prices fall, the real value of the money stock should rise and thereby the state of the economy should improve. Unfortunately, this important thesis did not become famous as “Haberler -” but as the “Pigou effect” in the later discussion.

Following his compatriot Joseph A. Schumpeter, in 1936 von Haberler joined Harvard University and acquired American citizenship. During WWII he was appointed to the US Federal Reserve System’s Board of Governors in order to design a strict anti-inflationary policy for the post-war period. Just as influential as the works already mentioned were his essays on “Some Factors Affecting the Future of International Trade and International Economic Policy” (1945) and on “Some Problems in the Pure Theory of International Trade” (1950). Here he refined his earlier arguments and showed that the benefits of international free trade do not depend on the assumption of any factor mobility. Some of the most important economists of our time emerged from his famous lectures and seminars at Harvard. In 1955 he was appointed president of the National Bureau of Economic Research (NBER) and in 1963 he assumed the presidency of the powerful American Economic Association. His book Economic Growth and Stability (1974) became a standard work during the inflation discussion of the 1970s and thus should be studied again today. Haberler succeeded in presenting his business cycle- and monetary theory in a closed system for the first time. Shortly after his retirement from Harvard, he moved to the “American Enterprise Institute” in Washington (DC) in 1971 and worked there with energy and creativity until a few years before his death.

Haberler’s last publication was released posthumously in 1992 as Wiener Lieder zu Philosophie und Ökonomie (1992). It is a collection of lyrics to songs that were composed by Haberler’s Viennese friend Felix Kaufmann and reflect in a unique way the intellectual climate and the creative atmosphere of the Austrian interwar period. Felix Kaufmann (1895-1949) was an outstanding philosopher, legal scholar, economist and businessman and wrote the lyrics in praise of the famous Mises seminars between 1922 and 1934.

Gottfried von Haberler was not only a leading economist of the 20th century, as a representative of the 4th generation of the Austrian school of economics, he was also one of the last representatives of this irreplaceable generation of classically educated European scholars. His oeuvre is extensive and highly topical. His bibliography includes around 20 books and brochures, well over 200 scientific articles and countless smaller works. His most influential works were published in three interlocking subject areas: the theory of international free trade, business cycle- and monetary theory. To mention all of his in the course of his long career is impossible given the number of them. Among his countless academic honors, decorations or awards only the famous “Antonio Feltrinelli Prize”, which the Academia Nazionale dei Lincei in Rome awarded him should be mentioned here. The brilliant mastery of his subject, his honest and undogmatic scientific approach, his unflinching, elegant and independent nature, but also his fine sense of humor is legion. Gottfried von Haberler died on May 6, 1995 in Washington, D.C. after a long illness. His sister Maria von Haberler lived in the ‘Rennhof’, the family seat high above the small community of Mauren, until her death.

Kurt R. Leube

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