The archive.

Every postwar slump revived the same dread, and by 1980, amid inflation, recession, a weak dollar, and a soaring gold price, it returned with fresh urgency. Whether another Great Depression could strike, Haberler answers by separating trigger from amplifier. The catastrophe of the 1930s, he argues, was largely homemade, a cumulative monetary contraction the Federal Reserve could have arrested, worsened by a fragile unit-banking system, rigid gold-standard parities, and beggar-thy-neighbor protection. Drawing on Friedman and Schwartz, he rejects the Marxist collapse theory, Keynesian secular stagnation, and the Austrian overinvestment account associated with Hayek and Robbins, noting that Robbins himself recanted. A deflationary depression on that model he judges almost inconceivable now, given deposit insurance and flexible exchange rates; the real modern danger is inflationary recession, policy panic, and the protectionism that once turned national rescues into collective ruin.

Money GNP fell by 16 percent, real GNP by 13 percent, industrial production by 32 percent and unemployment shot up from 11 percent in March 1937 to 20 percent in June 1938—all in the short span of 13 months.

Forty years after Schumpeter predicted that capitalism would perish of its own success, Haberler measures the prophecy against the postwar record. Schumpeter, he stresses, was no socialist: his forecast was diagnostic, resting on the claim that capitalism's economic triumphs corrode the cultural and political institutions that shelter it, from aristocratic leadership and the family firm to a bourgeois order steadily undermined by a rising class of resentful intellectuals. Haberler preserves that insight while pressing three corrections. Schumpeter oversold monopoly, much of which lives on state protection rather than creative destruction; his case for socialism's efficiency belonged to the 'logic of blueprints,' which paired comparisons of West and East Germany or Taiwan and China have since demolished; and his gloom about capitalist resilience underrated the growth the postwar decades delivered. The question, Haberler concludes, is how far public planning can go within democratic limits.

“Can capitalism survive? No. I do not think so.”

The fratricidal European war of 1914 ended a liberal international order of free trade, gold, open migration, and passport-free travel, and, in this survey prepared for the Antonio Feltrinelli Prize, becomes the starting point for sixty years of upheaval in the world economy, macroeconomic theory, and policy. Haberler reads the interwar catastrophe as the product of monetary destruction, delayed devaluations, and protectionism rather than any inherent flaw of capitalism; the postwar great surprise of prosperity he credits to sound finance, GATT liberalization, and Marshall Plan aid. Tracing the Keynesian revolution and the monetarist counterrevolution, he arrives at the stagflation of the 1970s, arguing that inflation is no permanent cure for unemployment and that monetary restraint must be joined to fiscal discipline and competitive, deregulated markets.

We now know that money had a lot to do with the Great Depression.

Grant a single ruler complete command of monetary and fiscal policy, insulated from parliaments and pressure groups: what would a credible cure for stagflation actually require? Haberler's benevolent and enlightened dictator is a methodological fiction, benevolent in respecting consumer sovereignty, enlightened in trusting competition and private property over the central planning of Lange and Dickinson. The prescription that follows binds monetary restraint, with money growth cut to potential real GNP growth, to fiscal discipline, tax reform against bracket creep and phantom profits, and above all the withdrawal of the privileges that keep wages and prices rigid: farm supports, the Davis-Bacon Act, minimum-wage laws, closed shops. Freer trade, he argues, is the most powerful discipline on domestic monopoly, and inflation the fons et origo of the whole malaise.

A 2 per cent reduction in real GNP is a shock, but it is not a crushing burden.

Assembled as the world economy emerged from the severest recession of the postwar period, this edited symposium gathers Haberler as framer and contributor alongside Michael Bruno, Robert Mundell, and others to debate what made the early-1980s slump so deep and how recovery might proceed. Haberler supplies the anti-catastrophic baseline: this was disinflation after the runaway 1970s, not a second Great Depression, since deposit insurance and central-bank activism made a wholesale monetary collapse unthinkable. Bruno presses the oil shocks and real-wage resistance; Mundell and other reformers warn of an unstable dollar and the absence of professional consensus. Against calls for coordinated intervention and fixed rates, Haberler defends floating as an imperfect but durable second-best in a world of divergent national policies.

The world economy is sinking, yet the profession is unable to reach any consensus on what should be done.

Development is ordinary economics practised under difficult conditions, not a separate discipline licensing illiberal policy. From that premise Haberler, writing as a trade theorist, prosecutes the anti-market doctrines that captured the postwar field: import substitution, exchange control, the big push, and chronic trade pessimism. He traces their appeal to a fatal misreading of the Great Depression, which he insists was a monetary catastrophe rather than proof of capitalist stagnation, and to an aggregation that lumped unlike countries together. The Prebisch-Singer terms-of-trade thesis he rejects with Lipsey's evidence; the demonstration effect he calls patronizing; disguised unemployment he answers with Viner and Schultz. His comparisons, West Germany against East, South Korea against North, Taiwan against China, turn the chapter into a broad indictment of planning, defending monoeconomics throughout.

The best policy would be to let free markets, in other words, capitalism, do what they do best – develop new industries.

Wide swings in the dollar and mounting protectionist pressure had, by the mid-1980s, revived the dream of governments steering exchange rates by agreement - a dream Haberler treats as more dangerous than the volatility it means to cure. The American trade deficit, he insists, is the counterpart of capital inflows financing federal borrowing when domestic saving falls short, not the product of foreign refusal to expand; the cure lies at home. Using an asset-market approach, he reads the Plaza Agreement and Baker-era activism as politicization of expectations rather than technical correction, since sterilized intervention moves rates only when it signals durable policy change. He rejects a return to fixed parities, target zones, and Group of Seven fine-tuning alike, holding that markets, though they err, err less persistently than politically committed states.

Inflation forced floating on reluctant policy-makers.

Pure free trade is politically rare and even theory admits exceptions to it, so the question Haberler pursues is not whether governments intervene but how. The form decides everything. A tariff is visible, general, price-based, and pours revenue into the treasury; a quota fixes volume by fiat and mints scarcity rents for whoever holds the license; worse still, a voluntary export restraint, like the one pressed on Japanese carmakers, ships that rent abroad. Around the surviving GATT core of most-favoured-nation treatment he charts a proliferating tangle of preferences, origin rules, and discretionary licensing, with agricultural protection, above all the self-contradicting sugar program, as his sharpest case. Where quotas cannot be abolished he would auction the licenses. His liberalism is institutional: rules and transparency against the administrative sprawl of managed trade.

But the élan of trade liberalization of the first 15 or 20 years of the postwar period has evaporated.

Three disorders defined the late-1980s world economy, and Haberler traces each to the same root: not technical malfunction but domestic policy failure. The persistent US budget and trade deficits, matched by German and Japanese surpluses; the volatility of a managed float in which governments pretend to know equilibrium rates and unsettle markets with interventions and communiques; and a debt crisis, opened by Mexico in 1982, that he reads less as a liquidity shortage than as the fruit of inflation, exchange controls, and bloated state enterprises. Rejecting Ricardian equivalence as psychologically false, he prescribes a credible multi-year phaseout of the structural deficit, funded by a stiff gasoline tax, and would leave currencies to competitive markets, contrasting Argentina's squandered decline with Chile's liberalization.

People just don’t think that way. Nobody knows what his future tax liabilities will be, let alone those of his children and grandchildren.