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July 1995
Volume 13, Number 7

Gottfried Haberler, RIP
Richard Ebeling

The period between the World Wars was a golden age for the Austrian School of economics. Led by Ludwig von Mises, a group of scholars writing in the tradition of Carl Menger broke new ground in economic science. Their studies showed the superiority of free markets and sound money over all forms of government control. A top theorist in that Mises Circle of thinkers was Gottfried Haberler, who died in Washington, D.C., at the age of 94 on May 6, 1995.

Haberler was the last of this generation's most famous economists. Born in 1902, Haberler attended the University of Vienna and studied with both Ludwig von Mises and, in Germany, Friedrich von Wieser. In the difficult years of the mid-1920s, Mises arranged a position for Haberler as librarian at the Chamber of Commerce, where Mises worked as an economist.

Haberler also taught a joint seminar with business-cycle theorist F.A. Hayek and capital theorist Richard Strigl in the late 1920s. Mises assisted Haberler in obtaining a research position with the League of Nations in Geneva, Switzerland, in the early 1930s. Haberler moved to Harvard University in 1936, where he taught until 1971. After Harvard, he took a position as a resident scholar with the American Enterprise Institute in Washington, D.C.

Austrian School economists frequently speak of the early and late writings of Haberler. His first book was The Meaning of Index Numbers (1927), an Austrian work showing that statistical aggregates hide the essential relative price relationships in a market. He offered an alternative, which he saw as more consistent with an Austrian understanding of the way prices move.

In 1931, Haberler published The Theory of International Trade, in which he reformulated the traditional "theory of comparative advantage" on an Austrian School view of opportunity cost. He also refuted protectionism and demonstrated that international trade assures economic efficiency and high living standards. Later, he updated his critique of trade barriers with Liberal and Centrally Planned Trade Policies (1934).

One of Haberler's greatest papers--"Money and the Business Cycle"--was presented in 1932 at the University of Chicago. It is an excellent exposition of the Austrian theory of the trade cycle, in which he showed why the Federal Reserve's attempt to "stabilize" the price level created the conditions that led to the Great Depression. This valuable contribution is reprinted in the Mises Institute's Austrian Theory of the Trade Cycle and Other Essays.

In an early revised edition of his Prosperity and Depression (1937), Haberler criticized Keynes's theory of the "liquidity trap" with an argument that later became famous under the name the "Pigou Effect," which showed that prices are more flexible than Keynes had assumed.

This book was a great success, and even after Haberler had moved closer to a Keynesian position, he always remained a strong advocate of free markets and free trade.

With Haberler's passing, we have lost the last remaining link with one the greatest generations of the Austrian School. Let the event serve as a reminder to today's Austrians of the enormous intellectual debt they owe this generation.

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Richard Ebeling holds the Ludwig von Mises chair in Economics at Hillsdale College

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