Walter Froehlich’s Review of Erich Preiser’s Bildung und Verteilung des Volkseinkommens (1957)

Walter Froehlich’s journal book review assesses Erich Preiser’s collected essays on economic theory and policy, locating their principal value in the analysis of income creation and income distribution. The collection brings together articles published, with one exception, in German periodicals and Festschriften between 1941 and 1956. Froehlich distinguishes their historical usefulness from their continuing theoretical significance: the wartime discussions of price controls and price-level measurement no longer substantially extend general knowledge, whereas the essays on savings, investment, profits, and distribution remain valuable. His governing judgment is that Preiser offers a lucid German elaboration of established theories, with occasional formulations that deserve a wider readership.

The review first considers the income-creation essays, written between 1944 and 1956. Their merit lies in separating questions that can become confused when Keynesian and classical arguments are compared: real and monetary relations, and conditions of underemployment and full employment. Froehlich emphasizes their explanatory achievement without claiming theoretical novelty:

For the purpose of bringing the analysis in Keynesian terms to the German reader the papers have been and still are well suited.

Preiser’s discussion of German business-cycle policy supplies the main example. In the classical formulation, additional investment requires reduced consumption when income initially remains unchanged; in the Keynesian formulation, investment can rise without an accompanying reduction in consumption. Expanding income creates additional demand, with possible subsequent price increases. Preiser presents a German sequence in which autonomous investment raises output, generates additional savings, and thereby finances further investment without inflation. His preference reflects the German circumstances of 1950: the wage-price differential was already too high, while relatively low wages permitted substantial investment from additional savings.

Froehlich qualifies this account by observing that an initial stimulus followed by investment financed through savings is not itself new. More importantly, he identifies the distributional burden concealed by an apparently technical contrast between investment mechanisms:

The burden of investment is borne in the Keynesian world, when full employment is finally reached, by lowered real wages (forced savings in the wake of price rises).

Preiser prefers sufficient voluntary saving to inflationary forced saving. Froehlich’s reconstruction thus connects income creation to the distribution of its costs: whether investment proceeds through freely supplied funds or through reduced real wages matters as much as the expansion of output.

The discussion of capital introduces a conceptual difficulty for American readers. Preiser uses Kapital for investible funds and, according to Froehlich, identifies Vermögen as the German term for real capital. His analysis therefore concerns financial resources and capital accounts. Without wage and price reductions, which he regards as depressive, growth requires additional banking funds for enterprise. Investment equals saving by definition in equilibrium; in disequilibrium, it equals saving plus entrepreneurial profits arising from price-level changes. Froehlich interprets this as a reformulation of the classical distinction between voluntary and forced saving. He nevertheless praises Preiser’s sustained separation of these price-induced profits from Schumpeterian profits generated by innovation. The distinction prevents different sources of entrepreneurial income from being treated as one explanatory category.

The review then turns to three contributions on distribution. The first revisits Böhm-Bawerk’s treatment of power and economic law. Because distribution operates through pricing, invoking power alone does not explain incomes; its effects must be specified through market forms and the conditions governing demand and supply. Following Eucken, Preiser introduces social conditions through factor-demand and factor-supply elasticities. Workers who own land, for example, have different labor-supply responses at low wages from workers without property. Froehlich draws out the consequence:

Hence functional and personal distribution are not as independent of each other as is sometimes assumed.

Property ownership consequently affects more than the allocation of income among persons. It also helps determine the conditions under which income is divided among productive factors. This is a central conceptual move in Froehlich’s account of Preiser: social circumstances enter economic explanation through identifiable market relationships.

The second distribution essay examines marginal productivity theory, treating income as determined by marginal revenue product and again introducing social conditions through elasticities. Preiser contrasts Marx’s assumption of pervasive quasi-monopoly rooted in property distribution with J. B. Clark’s assumption of competition throughout:

Hence, according to Preiser, the two theories are not contradictory, as commonly thought, but rather complementary to each other.

Froehlich reports this reconciliation as a difference in the conditions assumed by the theories. The third essay makes a narrower distinction, challenging Stackelberg’s inference that consistent undervaluation of future goods necessarily establishes positive time preference. Preiser argues that positive liquidity preference alone may account for that undervaluation.

Froehlich concludes by praising clear definitions, logically developed arguments, and selective use of algebraic income analysis. His recommendation remains measured: American literature has already treated many of these subjects extensively, but Preiser’s clarity and occasional new formulations make the collection worthwhile. The review’s enduring interest lies in its account of how monetary mechanisms, property relations, and market assumptions alter the interpretation of familiar theories without necessarily displacing them.