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Canetti: molded by Europe in the '20s; The Torch in My Ear, by Elias Canetti. Translated from the German by Joachim Neugroschel. New York: Farrar, Straus & Giroux Inc. 372 pp. $16.50.

The argument that the Nobel Prize for Literature is frequently awarded to obscure writers resurfaced in 1981, when the recipient of the prize was sociologist-philosopher Elias Canetti, Bulgarian-born, now living in London and Zurich and writing in German.

What many contemporary readers do not realize is that Canetti's rich and various oeuvre has earned him a high international reputation. His classic sociological study on ''the psychology of crowds,'' ''Crowds and Power'' (1960), and his eerie novel ''Auto-Da-Fe'' (1936), about a sheltered intellectual thrown headlong into ''real life,'' are probably his best-known works. Lesser known, but perhaps equally interesting, are his pungent account of a visit to north Africa, ''The Voices of Marrakesh'' (1967), and his incisive study of Kafka's letters to his financee, Felice Bauer, ''Kafka's Other Trial'' (1969). Few modern writers, in fact, have shown themselves so versatile.

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Canetti was born in 1905, into a Sephardic Jewish family remarkable for its broad cultural interests and accomplishments. The story of his early years, comprising mainly a multilingual education in several European countries and in England, is told in his previous volume of autobiography, ''The Tongue Set Free'' (1980).

The present book, which concerns itself primarily with Canetti's continuing education in life, also describes his family's sojourns through Europe in the decade 1921-31. We first observe young Elias, his younger brothers, and his widowed mother (notable for her ''superhuman effort for the intellectual development of her sons'') in Frankfurt during a period of runaway inflation presaging economic collapse. Some vivid character sketches of their neighbors in a boardinghouse there (''The Pension Charlotte'') are neatly interwoven with expressions of the young intellectuals' agony of guilt over their prosperity in a world where millions were facing imminent hard times.

In Vienna, throughout the mid-'20s, Canetti edged away from his studies in medicine and chemistry and absorbed several powerful influences - chief among them the beautiful soulmate, Veza, who later became his first wife, and the fiery intellectual and polemicist Karl Kraus, presiding genius of the celebrated magazine The Torch, author of ambitious plays, and much more.

We later see Canetti luxuriating in ''the turbulent and incredibly active life of Berlin,'' meeting such luminaries as Bertolt Brecht, the caricaturist George Grosz, and the brilliant Russian writer Isaac Babel. Back in Vienna, at the turn of the 1930s, his experiences broadened: There are detailed accounts of his friendship with the quadriplegic intellectual Thomas Marek, and his accidental intimacy with a gang of burglars. Then the book breaks off very abruptly, arbitrarily. This is a good sign: There is, clearly, very much more to come.

The unique strength of this autobiography-in-progress is Canetti's ability at showing us how different experiences and acquaintances have shaped his career and his thought. His analytical cast of mind diverted him from being an orthodox religious believer, and stimulated a skeptical approach toward everything he later encountered. His respect for a classmate's artistic family gave him ''an intact, unquestioned notion of art and the lives of those who devote themselves to it.''

Specifically, he shows us how a single vivid experience crystallized the thinking that would produce ''Crowds and Power'' and ''Auto-Da-Fe'': in 1927 in Vienna, a crowd of protesting workers was shot by policemen, who were subsequently acquitted; a later protest culminated in the burning of the Palace of Justice. From that upswell of emotion - and its progress into a conflagration - Canetti built a structure of ideas and images from which both his great sociological study and his great novel would eventually derive.

Everything thus recalled is analyzed in depth, at several successive levels of meaning and implication. You'd expect this method to make Canetti's work slow and ponderous. It does not. This formidably complex and intelligent writer probes his own experiences so thoroughly that their essential singularity and mystery become vividly present for us. He is a wonderful writer.

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