Sunday, August 19, 2018

Ludwig Lachmann -"It need never have happened"

In 1967, at the impressionable age of 19, having decided, for reasons I can no longer remember, to study economics, I encountered Ludwig Lachmann. Lachmann was a Jewish √©migr√© from Germany, having come to South Africa in 1950 to assume the position of chair of the department of economics and economic history at Wits (the University of the Witwatersrand). He came via London, after leaving Berlin with his wife in 1933, the year that Adolf Hitler came to power. Though attracted even then to the teachings of the Austrian School of Economics, this interest appears to have been greatly enhanced by many years of study with Friedrich Hayek at the LSE (London School of Economics). It was apparently during this time that his lifelong interest in capital theory was formed, though, at that time, it was mostly in connection with the energetic efforts of those many young scholars in the “Hayek circle” to understand the workings of the business cycle in order to come up with an explanation for the deepening crisis in which they found themselves in the 1930’s.

By the time he got to Wits the Great Depression was over and the protracted post-war period of economic growth was about to take off. In 1956 he published his most well-known book, Capital and its Structure, which cemented his reputation as an Austrian capital theorist and by the time I came to be in his class, in Economics II (as a second year undergraduate) he was devoting considerable attention to capital theory and growth theory in his lectures. It was through a lens shaped by this experience that I viewed him.

That year was the beginning of a lifetime association with Professor Lachmann, my most important economics teacher. Upon graduating my BA in 1968, I joined his honors seminar until I left for the Ph.D. program at the University of Chicago in 1972. (I returned briefly to South Africa 1976-1978, during which time I taught economics and resumed attending the honors seminar.) Little did I know that by the time I left Lachmann had completed and published his book The Legacy of Mac Weber. I was only dimly aware of who Weber was and oblivious as to why Lachmann might be interested in him. Looking back I realize how abysmally ignorant and conceptually immature I must have seemed, although less so than my peers. Lachmann must have struggled to find thinkers with whom he could truly converse. The opportunity to do so later, must have been very welcome, when he became a yearly visitor to New York University (and with some frequency to George Mason University), where he encountered Don Lavoie and other “mature” thinkers, some of whom would have been knowledgeable about the history of Germany and German social thought. I was aware of this from afar, when I returned to Austrian economics after Chicago, but my main interests lay elsewhere.

Now, in my 70th year, I find myself reading the third essay of his Legacy of Max Weber through a greatly expanded lens. It is an eerie experience. I hear him talking to me from beyond the grave, “Do you understand now what I was doing? Do you understand what I was trying to communicate, and why?”

In this connection I think of one particular episode from our early acquaintance. I was a junior lecturer at Wits, and a member of the Lachmann honors seminar, circa 1977 (Legacy had been published a few years earlier). I had a colleague that I introduced to the seminar, an Israeli living in South Africa. It so happened that he found himself one time alone with Lachmann in his office, perhaps arriving early for the seminar. Unlike me, who was extremely reticent in my demeanor toward my professors, he was very forthcoming and unrestrained in his curiosity, and, thus, asked a question I never would have. Knowing that Lachmann had left Germany in 1933, and knowing that he was Jewish, and strongly identified as Jewish, he asked him what he thought about the Holocaust! As I remember what my friend reported to me at the time, he replied that it was, indeed, a terrible tragedy, all the more so because it was something that “need not have happened”.

This has stuck with me over the years. I had no clue what he could have meant by this, what it implied to him, and even how anyone could say such a thing. Was he making excuses?

Now as I read his third essay on “Political Institutions”, and encounter a detour describing German history and the climate of opinion from German unification in 1871 until the rise of Hitler, I suddenly see what may be what he meant. My impression is strengthened by the fact that it is exactly what he was immersed around the time of the conversation in question.

My brief summary will not do justice to the subtleties of Lachmann’s account and is meant simply to indicate the nature of his preoccupations at the time he wrote this essay. He is referring to the fragility of the Weimar Republic. The unification in 1871 established the Great Compromise of the Rechstaat, the term by which it was known, which translates loosely as ‘the rule of law’. The power of the traditional Prussian agrarian elite, the Junkers, though diluted in the new institutional structure of the German Empire remained important. The Junker nobility was influential beyond its economic and political power across a wide range within the broader population. The new coalition of interests agreed, however, on the importance of institutional stability in the face of the rapid changes occurring as a result of industrialization. And this notion of institutional stability included the principle of freedom of contract and broadly laissez faire rules within a facilitating constitutional framework of “fundamental institutions”.

Industrialization brought with it a rapidly growing working class that did not seem to fit well within the new institutional order. From the 1880’s the Great Compromise was being challenged by the ascendancy of Marxist thinking, albeit subject to much revisionism, that saw history as an inevitable march toward the triumph of socialism. World War I shattered the institutional framework of the Great Compromise  and whatever influence the elite still had, and the coalition that constituted the Wiemar Republic formed in its wake, included a strong contingent of socialists ( for whom, as dedicated professionals, Lachmann interestingly expresses some admiration) who worked with the rest of the coalition to promote economic growth with the conviction that it was a necessary step along the path to socialism. And when in 1933 Hitler rose to power they viewed it in the same light, heralding an aspect of the impending collapse of capitalism. By this time, Lachmann suggests, quite simply the “fundamental institutions” of the Rechstaat had disappeared. There was no bedrock set of principles, or any strong political group who embraced them, to push back. Had these institutions and the principles they represented not been so eroded the Holocaust might never have happened (my interpretation).

To my knowledge, Lachmann never wrote about the Holocaust. But, I found his choice of words in this passage quite provocative.

“The mere fact that after the holocaust of Nazi rule and the Second World War the new German state was again erected on the same foundations as the Weimar Republic had been, because there were no others, seems to us to attest the inherent strength of the social forces underlying both.”

And he continues:

“Where, then, lay the weakness of the Weimar Republic? It so happens that the critical source of its weakness lay in … [that] its fundamental institutions rested on no firm basis. The compromise [between the parties of the coalition, notably by the socialists] was regarded by too many of the participants as a temporary rather than a permanent one, not as a Great Compromise [Rechstaat] but rather as a petit compromise”.

For Lachmann the Holocaust was a matter of personal experience. He was in a very real sense a ‘survivor’. I know nothing of the fate of his extended family, of friends and colleagues or of his personal feelings about those of his associates who rode the Nazi bandwagon, including his thesis supervisor Werner Sombart. I for one regret that he never addressed these matters publicly. After reading this essay I also wish he would have written a book on the history of modern Germany fleshing out the insights he presented so briefly in this essay. He refers the reader to the “brilliant” work of Joseph Schumpeter on this subject, but I can’t help feeling that Lachmann could have added much of value to that work, though, given my limited expertise, I make no judgment as to its standing relative to other different interpretations of that tumultuous history.

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