Foreign Trade and Exchange Rates: The Theoretical Contribution of Eli Heckscher to International Economics

Who Eli Heckscher is depends on the beholder. He is a scientific Janus face (Henriksson and Lundahl, 2003). Quantitatively speaking, he is an economic historian, with seminal international contributions about the Continental System (Heckscher, 1922a) and mercantilism (Heckscher, 1935a) to his credit. His latter-day Swedish colleagues are still wrestling with his four-volume work on the economic history of Sweden from Gustav Vasa to the nineteenth century (Heckscher, 1935b, 1936, 1949a, 1949b) and his Svenskt arbete och liv (Heckscher, 1941), translated as An Economic History of Sweden (Heckscher, 1954), was compulsory reading on the course lists in economic history for many years. At the same time, Heckscher was an economist. His name is inexorably connected with one of the fundamental theorems in the theory of international trade, the so-called Heckscher-Ohlin theorem. A country exports goods that require relatively much of production factors in abundant supply in the country and imports goods which require relatively much of factors which are scarce in the country. Heckscher wrote yet another article in international economics, about what determines the exchange rates between different currencies, an article which received far less attention than his contribution to the theory of international trade, until it was ‘rediscovered’ in the 1980s and 1990s.