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Economic Growth & Stability: An Analysis Of Economic Change And Policies
291 pages, Hardcover
First published January 1, 1974
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November 8, 2023
AN AUSTRIAN ECONOMIST LOOKS AT THESE ISSUES
Austrian economist Gottfried Haberler wrote in the Preface to this 1974 book, “I started writing this book six or seven years ago but was interrupted several times by other work… The book summarizes and amplifies the results (but not all the theoretical underpinning) of my work in the area of business cycles, money and inflation, as well as international trade and development… During the postwar period and even while this book was being written, remarkable changes have occurred in the expert opinions of economists as well as in the attitudes of policy makers and the public at large concerning economic stability and growth. The changes in opinion were followed in due course by equally pronounced changes and reversals in economic policies… the postwar record of performance of the economy has been excellent. But we had to pay a price---the creeping inflation which recently has gone into high gear…
“The alarming rise in prices has renewed the fear in some quarters that, contrary to what the great majority of economists had come to believe, serious depressions may not be entirely a thing of the past… In the 1960s American policy makers thought they had mastered the art of ‘fine tuning’ the economy; by changing taxes and central government expenditures, they believed they could iron out even mild fluctuations in economic activity and achieve continuous full employment. Actually, fiscal policy proved to be a clumsy instrument. By and large, government finance has been a destabilizing factor in the economy, partly… because of the expenditure explosions caused by the wars in Korea and Vietnam. What the ‘fine tuners’ accomplished was to lay the foundations for the new wave of inflation which has engulfed the United States and the rest of the world…
“The disillusionment with controls is a very healthy development. But there is danger that it may go too far in one respect.: the tragedy was that price controls were applied indiscriminately to a largely competitive economy. The debacle of the policy should not be allowed to compromise monopoly control. And labor unions are the most powerful monopolists. The basic differences between controlling competitive and monopoly prices are repeatedly stressed in the following text.”
He asserts in the first chapter, “To be free a person must have a large array of choices: as to the work he wants to do, where he wants to do it, whether he wants to work for himself or for another… [This] is a value judgment. For those who accept it, as does the writer, it follows that the search for the best tools for realizing the economic objectives of stability and growth must be restricted to those who respect the rights of the individual and are consistent with the modus operandi of the free enterprise system. The instruments available will obviously be fewer for a government operating under these restraints than for one that can treat its people as pawns for its purposes.” (Pg. 4)
He states, “If in 1931 or 1932, before the bottom of the Great Depression had been reached, the individual income tax had been cut 50 percent as an antidepression measure, it would not have arrested the downward movement of the economy because at that time the yield of the income tax was but a minute fraction of aggregate expenditures. Today, such a step could turn a deep depression into a runaway inflation---co much larger is the relative size of the public sector land so much greater the weight of the income tax in total expenditures.” (Pg. 16)
He acknowledges, “The recent backlash against growth is, however, not all semantics and ideology. Growth… is not costless. Important substantive problems are involved: the deterioration of the environment, pollution of air and water, overcrowding and ‘uglification’ of the cities, despoiling of the landscape by unsightly litter… traffic congestion, and so forth. All of these are the concomitants of population growth and rising affluence.” (Pg. 31)
He cautions, “From a narrow static standpoint, it is tempting to go on and to conclude that, to promote growth, any kind of unemployment ought to be prevented by expansionary measures because every hour lost in unemployment implies a reduction in output, and lost output is lost forever. This statement must, however, be severely qualified when we leave the static textbook world and consider the real world, especially a dynamic, rapidly growing free enterprise economy… In such a world… stabilization and full employment policies, if pushed too far, will come into conflict not only with the objective of price stability but will collide also with the objective of maximum long-run growth itself. Neither fiscal nor monetary policy can deal with all the varieties of unemployment found in the real world.” (Pg. 76)
He suggests, “In the … case [of] unemployment in particular industries caused by imports---measures to hasten and facilitate the transfer of labor and other productive resources to other industries can be justified. Examples are retraining of workers and unemployment relief measures to reduce the pains of adjustment and transition. But a policy of protection to keep alive firms or industries whose products can be imported more cheaply form abroad has no economic justification; it would be an antigrowth and not a growth policy. Exactly the same has to be aid about subsidies and tax measures to keep those export industries that have lost their competitiveness in the world market alive.” (Pg. 145)
He observes, “The soil in which the gold standard flourished has been gradually eroded. It was finally swept away in the Great Depression of the 1930s. The gold mystique is gone. Today few experts seriously propose to entrust the international monetary system to the vagaries of gold production in two countries, Russia and South America, to the whims of gold hoarders and to the unpredictable changes in demand for gold for industrial uses. Exchange rates are no longer credibly fixed, so that we can no longer count on the help of equilibrating capital movements which was essential for the working of the gold standard.” (Pg. 160)
He concludes, “To sum up, there can be no doubt that economic stability and growth are best served by fixed exchange rates, PROVIDED the fixed rates need not be propped up by controls and to not impose on any country excessive inflation or deflation (unemployment). Unfortunately in the modern world these conditions are rarely fulfilled by sovereign countries… Therefore, parity changes have to be made from time to time. It is then much better to bring them about by floating than by occasional large appreciations or depreciations as was the procedure under the Bretton Woods adjustable peg system.” (Pg. 196-197)
This book may appeal to those studying later developments of the Austrian school.
Austrian economist Gottfried Haberler wrote in the Preface to this 1974 book, “I started writing this book six or seven years ago but was interrupted several times by other work… The book summarizes and amplifies the results (but not all the theoretical underpinning) of my work in the area of business cycles, money and inflation, as well as international trade and development… During the postwar period and even while this book was being written, remarkable changes have occurred in the expert opinions of economists as well as in the attitudes of policy makers and the public at large concerning economic stability and growth. The changes in opinion were followed in due course by equally pronounced changes and reversals in economic policies… the postwar record of performance of the economy has been excellent. But we had to pay a price---the creeping inflation which recently has gone into high gear…
“The alarming rise in prices has renewed the fear in some quarters that, contrary to what the great majority of economists had come to believe, serious depressions may not be entirely a thing of the past… In the 1960s American policy makers thought they had mastered the art of ‘fine tuning’ the economy; by changing taxes and central government expenditures, they believed they could iron out even mild fluctuations in economic activity and achieve continuous full employment. Actually, fiscal policy proved to be a clumsy instrument. By and large, government finance has been a destabilizing factor in the economy, partly… because of the expenditure explosions caused by the wars in Korea and Vietnam. What the ‘fine tuners’ accomplished was to lay the foundations for the new wave of inflation which has engulfed the United States and the rest of the world…
“The disillusionment with controls is a very healthy development. But there is danger that it may go too far in one respect.: the tragedy was that price controls were applied indiscriminately to a largely competitive economy. The debacle of the policy should not be allowed to compromise monopoly control. And labor unions are the most powerful monopolists. The basic differences between controlling competitive and monopoly prices are repeatedly stressed in the following text.”
He asserts in the first chapter, “To be free a person must have a large array of choices: as to the work he wants to do, where he wants to do it, whether he wants to work for himself or for another… [This] is a value judgment. For those who accept it, as does the writer, it follows that the search for the best tools for realizing the economic objectives of stability and growth must be restricted to those who respect the rights of the individual and are consistent with the modus operandi of the free enterprise system. The instruments available will obviously be fewer for a government operating under these restraints than for one that can treat its people as pawns for its purposes.” (Pg. 4)
He states, “If in 1931 or 1932, before the bottom of the Great Depression had been reached, the individual income tax had been cut 50 percent as an antidepression measure, it would not have arrested the downward movement of the economy because at that time the yield of the income tax was but a minute fraction of aggregate expenditures. Today, such a step could turn a deep depression into a runaway inflation---co much larger is the relative size of the public sector land so much greater the weight of the income tax in total expenditures.” (Pg. 16)
He acknowledges, “The recent backlash against growth is, however, not all semantics and ideology. Growth… is not costless. Important substantive problems are involved: the deterioration of the environment, pollution of air and water, overcrowding and ‘uglification’ of the cities, despoiling of the landscape by unsightly litter… traffic congestion, and so forth. All of these are the concomitants of population growth and rising affluence.” (Pg. 31)
He cautions, “From a narrow static standpoint, it is tempting to go on and to conclude that, to promote growth, any kind of unemployment ought to be prevented by expansionary measures because every hour lost in unemployment implies a reduction in output, and lost output is lost forever. This statement must, however, be severely qualified when we leave the static textbook world and consider the real world, especially a dynamic, rapidly growing free enterprise economy… In such a world… stabilization and full employment policies, if pushed too far, will come into conflict not only with the objective of price stability but will collide also with the objective of maximum long-run growth itself. Neither fiscal nor monetary policy can deal with all the varieties of unemployment found in the real world.” (Pg. 76)
He suggests, “In the … case [of] unemployment in particular industries caused by imports---measures to hasten and facilitate the transfer of labor and other productive resources to other industries can be justified. Examples are retraining of workers and unemployment relief measures to reduce the pains of adjustment and transition. But a policy of protection to keep alive firms or industries whose products can be imported more cheaply form abroad has no economic justification; it would be an antigrowth and not a growth policy. Exactly the same has to be aid about subsidies and tax measures to keep those export industries that have lost their competitiveness in the world market alive.” (Pg. 145)
He observes, “The soil in which the gold standard flourished has been gradually eroded. It was finally swept away in the Great Depression of the 1930s. The gold mystique is gone. Today few experts seriously propose to entrust the international monetary system to the vagaries of gold production in two countries, Russia and South America, to the whims of gold hoarders and to the unpredictable changes in demand for gold for industrial uses. Exchange rates are no longer credibly fixed, so that we can no longer count on the help of equilibrating capital movements which was essential for the working of the gold standard.” (Pg. 160)
He concludes, “To sum up, there can be no doubt that economic stability and growth are best served by fixed exchange rates, PROVIDED the fixed rates need not be propped up by controls and to not impose on any country excessive inflation or deflation (unemployment). Unfortunately in the modern world these conditions are rarely fulfilled by sovereign countries… Therefore, parity changes have to be made from time to time. It is then much better to bring them about by floating than by occasional large appreciations or depreciations as was the procedure under the Bretton Woods adjustable peg system.” (Pg. 196-197)
This book may appeal to those studying later developments of the Austrian school.
Displaying 1 of 1 review