August Lösch - In Memoriam
WRITTEN amid privations and war, The Economics of Location bears witness to a combination of rare strength of character, intellect, and warmth of personality in its author which is not frequently found in scientific works in any language.
August Lösch was born in 1906. He died shortly after the end of hostilities on May 30, 1945, at least partially as the result of that very strength of character which forbade him to make any compromises with the National Socialist regime. He never even considered taking a government or academic position in which he would have had to swear a personal oath of allegiance to Hitler. The willingness to accept a professorship after the war, which he expressed in the foreword to the second edition of his book, speaks for his courage as well as for his solitude. It is for this reason that though we have omitted this note from the American edition we have not felt free to change any of the many passages in which his love for his homeland of Swabia is fervently expressed. For what has been hypocrisy in many others who turn their love of country to account, in Lösch is a reminder that there are men who can combine passion with intellect, love of home with a cosmopolitan view.
Even a glance at The Economics of Location is enough to convince the reader that its author was an extraordinary personality. All of Lösch´s work is original in a double sense of the term. He asked significant new questions and he added significantly to the answers given by others to older questions. Like most truly original persons, Lösch appreciated the contributions of others. The Economics of Location contains an immense number of references to other works. But two things stand out: Lösch never hesitated to quote anyone whether or not he belonged to the "wrong" nation or "race" - which was by no means easy at the time he was writing this book. And he never quoted merely to criticize. This book, a substantial piece of work, not only gives credit where credit is due; it shows an appreciation of the achievement of others without accepting anything, including the author's own contribution, as final truth. Yet no man had more passion for truth, more feeling for the fact that truth must come before originality.
Lösch´s first publication concerned the transfer problem and grew out of a seminar paper. His first major piece of work was a booklet about the economic consequences of a declining population, perhaps the best discussion of the problem in terms of classical (in the sense of pre-Keynesian) theory that exists. The subject was set as a prize question and Lösch won the contest. Because he believed in personal freedom, including the taking of risks, he chose to publish the booklet himself, using the prize money for the purpose. That book and his next major work, on Population Cycles and Business Cycles, dealt with the economics of population. Both show all the characteristics of a modern economist who attempts to fuse theory and facts in one indissoluble whole. The books are concisely written; no superfluous introductions ease the reader into the subject matter. Nor does Lösch spare the reader concise reasoning or a multitude of facts.
It may not be without interest to give the main results of Lösch´s population study in some detail, since the relation of population growth and business cycles has aroused new interest through the Keynes-Hansen-Terborgh discussion, through the stagnation thesis and criticisms of it, and again through the fact that the forties and early fifties have been a period of prosperity which has also witnessed the largest absolute increase of population in the history of the United States.
The question whether population cycles cause business cycles requires different answers, according to Lösch, in the precapitalist and the capitalist eras. During the capitalist era population movements are neither necessary nor sufficient to explain the fluctuations of the economy. Nevertheless Lösch establishes the fact that in Germany industrial production as a rule increased quickly following a population increase. Indeed, during the periods 1861-1913 and 1923-33 he finds only two exceptions to this relationship. Since the economic development of growing nations takes to a large extent the form of increased housing and capital equipment for the increased numbers of people, as well as of increased amounts of consumers´ goods, it is not unexpected that the rhythm of population movements and of business cycles should largely coincide. Furthermore, the growth of the economy to accommodate a growing population entails smaller risks than the adaptation to changes brought about by technological progress and the creation of new markets. Thus, in Lösch´s own words, although "population growth does not create business cycles, it shapes their course."
This kind of discussion is quite familiar today. But Lösch antedates the Keynesian discussion. If his contribution is formulated in terms of any one particular frame of reference, it is in terms of Spiethoff´s or perhaps Schumpeter´s rather than Keynes´ theoretical language. His contribution is distinguished by solid statistical verification and arguments largely missing in the Anglo-American discussion. The Economics of Location, like his book on population cycles, exhibits the characteristics of a man blessed at the same time with originality and a sense of tradition and history. Lösch knew and used the traditional theories of location from von Thünen on. Yet he succeeded in bringing new insights even to so well-developed a theory as that of the famous Thünen rings. His criticism of Alfred Weber´s location theory is essentially that voiced by Schumpeter. Weber´s solution is in terms of partial equilibrium theory and as such is a brilliant piece of work. But the partial equilibrium approach means that among the other things which have to be assumed as given are demand, the location of raw materials, and the location of markets. What remains to be accomplished, therefore, once a satisfactory solution of the partial equilibrium problem has been found, is the development of a general equilibrium approach.
This is precisely one of Lösch´s major contributions. He had Ohlin´s and Palander´s work to build on, and gratefully acknowledged both - in spite of the fact that he was already working out his own ideas when they published their contributions. It is nevertheless fair to say that Lösch was the first to present a full general equilibrium system describing in abstract the interrelationship of all locations. To be sure, he did not go beyond counting equations and unknowns. But this in itself is a major achievement which, in its precision, had eluded his intellectual forebears. Again his achievement sets the stage for the next step in the development of the general theory of location: the development of the dynamics of locations. Lest we lose patience and courage it may be well to remember that it was over sixty years before dynamics was added to the Walrasian system.
Lösch himself has pointed out that his system of equations shares the weakness of any general theory which is too all-inclusive to be applicable. This was one of the reasons why he developed his theory of economic regions. However, the theoretical framework itself is useful for a number of problems for which it must, of course, be narrowed down and made specific. It is surely no accident that one of the most useful pieces of theoretical and empirical research, Leontief´s input-output analysis, which has opened up entirely new vistas, is based on the most general Walrasian system. And the application of input-output analysis to regional data, attempted by Isard, for the same reason will have to come to terms with the general theory of location which, in a sense, is simply the application of the Walrasian system to an economy in which distance is also a variable. Finally, anyone who works with regional economies of the real world knows that interregional relationships assume greater importance the smaller the region considered. Any theory which enables the scholar to keep these mutual relationships in mind therefore fulfills an important function in empirical research.
Lösch´s discussion of the nature of economic regions is probably his most original contribution. To be sure, here too he has in Ohlin a magnificent predecessor. Yet there are enough differences to mark Lösch´s work as something entirely new. The novelty could be characterized in different ways. Lösch does not assume his region or define it, for example, by means of factor mobility; nor does he assume the existence of markets, sources of raw materials, or even transport lines. Instead he develops the structure of a region, that is, the interrelationship of all relevant variables, with a minimum of assumptions which, with true genius, are deliberately chosen to be as generalized as possible. The very lack of realism reminds one of the theory of comparative cost which also substituted for the trivial realism that grapes could not be grown in Scotland the brilliant proof that an inefficient producer could not be undersold in all goods.
To put it differently, Lösch does not ask for the definition of a region by means of which to analyze it, nor does he search for particular characteristics. His region is not defined by factor mobility - for factor mobility is also permissible between regions - nor by "homogeneity" nor by "self-sufficiency", though the last and possibly also the first of these characteristics can, after his discussion of the nature of a region, be read into it. Instead his question concerns the interrelationship of individual production and consumption units, the eventual location of markets and producing centers, of transport lines, of distribution of population and cities, all to be simultaneously and mutually determined. What matters is the complicated structure, the Gestalt, not the average characteristics of an area. The relevance of these ideas to the problems of underdeveloped countries is obvious, and their application in specific cases may turn out to be extremely useful.
The statistician and empirical scholar may well point out that statistics cannot possibly be assembled for all points of the United States but must of necessity be com-bined for smaller or larger areas. This is true enough, though perhaps less true than it seems at first, since the aggregations themselves are based on the detailed individ-ual data originally collected. And even to the extent to which it is true, it is less damaging than at first appears. The bulk of Lösch´s book consists of applications of his ideas to data, chiefly to American data. This alone indicates their fruitfulness for empirical research. But again, anyone working with regional data knows that little can be done with the data of a single region in isolation without considering interrelationships with other areas. The income of a region depends, of course, on its productivity, but just as clearly on the prices of its exports and imports. As soon as this is pointed out, the structure - industrial, agricultural, population, capital, etc. - again becomes of paramount importance. In a similar manner interregional wage differentials cannot be understood without an awareness of the structure both of a region and its relationships with the outside world.
The Economics of Location is not easy reading. This is partly due to the evident pressure under which it was written. In a few places it may be because important passages from the first edition which were omitted from the second German edition to save space have been reinserted in the American edition in the appropriate places. But basically it is due to the very newness of the ideas: not enough time has as yet elapsed or professional discussion taken place since the publication of the book to lead to simplification, a streamlining as it were, of the formulations. Lösch´s work opens up new vistas and new avenues of research. No greater compliment could be paid to it than its being taken up where Lösch left off and carried on to new formulations and achievements. The highest praise of this book will be if in the future it can be said that the work it has stimulated has made it obsolete.
WOLFGANG F. STOLPER
Ann Arbor, Michigan 1953
Wolfgang F. Stolper, August Lösch in Memoriam; in: August Lösch, The Economics of Location, New Haven: Yale University Press, 1954