Frank A. Fetter
Every theory must ultimately meet two tests: one, that of internal consistency, the other that of consistency with reality.
In the period between the founders of the Austrian school (Menger, Böhm-Bawerk, and Wieser) and its next generation (led by Mises and Hayek), Frank Albert Fetter was the standard bearer of the Austrian tradition. His 1904 treatise, Principles of Economics, constructed a general theory of economics in the Austrian tradition that went unsurpassed until Ludwig von Mises's treatise of 1940, Nationaloekonomie. Yet Fetter, an American Austrian long before the inter-war migration from Austria, has not received due recognition for his many contributions to the tradition.
Using the axiomatic-deductive method, he traced economic laws to individual human action, and demonstrated that just as the price of each consumer good is determined solely by subjective value, the rate of interest is determined solely by time preference. The rental price of each producer good is imputed to it by entrepreneurial demand and is equal to its discounted marginal value product. The capital value of each durable good is equal to the discounted value of its future rents. Fetter showed how this uniform, subjective theory of value implies the demise of socialist theories of labor exploitation, Ricardian theories of rent, and productivity theories of interest.
Building on his Austrian theory of capital, money, interest, and entrepreneurship, Fetter even developed a rudimentary theory of the trade cycle, arguing that the boom period is characterized by the artificial swelling of capital values as money and credit expand. The crisis follows when the inflation ceases which causes the mistaken capital values of the boom to suddenly correct downward and, in turn, results in the bankruptcy, unemployment, and retrenchment of the depression.
Born on March 8, 1863, in the farming community of Peru in north-central Indiana, Fetter enrolled at Indiana University at the age of sixteen. Although in the class of 1883, he left college after his junior year to operate the family's book store while his father was ill. During these years, he read the books and periodicals provided to him on the job, which included Henry George's Progress and Poverty, the book that influenced his decision to choose economics as a career.
After eight years as a successful entrepreneur, he returned to Indiana University obtaining his bachelor of arts degree in 1891. In this respect too, his self-sacrificing delay in his formal studies proved momentous, for he was able to finish his degree under the influence of Jeremiah W. Jenks. The following year Jenks, who was then at Cornell University, obtained a fellowship for Fetter and he earned the degree of master of philosophy from Cornell that same year. Jenks then encouraged him to study under Johannes Conrad, as he himself had done. After studying under Conrad and attending lectures at the Sorbonne in Paris, Fetter earned a Ph.D. in 1894 from the University of Halle in Heildeberg. He wrote his dissertation on population theory, which he saw as part of a larger theory of welfare, and devoted himself thereafter to the development of a general theory of value and welfare.1
Fetter returned from his formal studies to Cornell as instructor for one year and then accepted a position as professor of economics and social sciences at Indiana University until 1898. For the next three years, he taught at Stanford University and, from 1901-1911, he became Jenk's colleague at Cornell as professor of political economy and finance. In 1911 he accepted the chairmanship of the interdisciplinary department incorporating history, politics, and economics at Princeton University and, beginning in 1913, he served as chairman of the newly configured economics department for eleven years. He attained emeritus status in 1931 under Princeton's forced retirement regulations, but his popularity and productivity were so great that he was kept on to teach graduate-level courses until he reached the age of seventy in 1933.
Fetter taught on a visiting or exchange basis at Harvard, Columbia, the Johns Hopkins and Northwestern Universities, the University of Illinois, and the Claremont Colleges. In every post, he was a revered professor and beloved mentor. He was awarded the honorary degree of doctorate of laws from Colgate University in 1909, Occidental College in 1930, and Indiana University in 1934. Intellectually active until his death in 1949, Fetter is the author of eight books, more than a hundred scholarly articles, and more than fifty book reviews. He gave a dozen major addresses and testified before Congress and federal government agencies several times in his long and productive life.
Prior to the advent of a mature Ludwig von Mises, Fetter was the world's leading subjective-value theorist. While Mises would bring the theory of money within a subjective-value, general theory of economics in 1912, Fetter had by 1904 already extended the principle of subjective value to bring factor prices and the rate of interest into a unified theory.
The distinctiveness of his contribution was not lost on the profession at large, and it was widely recognized as an Austrian one. A twenty-page article assessing Fetter's book appeared in 1905 in the prominent Quarterly Journal of Economics. The author, Robert F. Hoxie, wrote that Fetter had removed "the lack of harmony... in the eclectic union of the Austrian doctrines with the older classical theory." Hoxie noted that Fetter had rejected the profession's "return towards the objective cost explanation" from the "purely psychic explanation of economic phenomena in terms of utility." Instead, Fetter held, according to Hoxie "that the Austrians were, after all, on the way towards a true and consistent interpretation of economic activity. They failed in this, not because they had departed too far from the classical preconceptions, but because they could not wholly emancipate themselves from the older economic notions." Hoxie claimed that Fetter had taken up again "the initial conceptions of the Austrians" and attempted "to push their characteristic line of thought to its just and ultimate conclusions." Fetter saw "economics as essentially the study of value, and has viewed all economic phenomena as the concrete expression, under varied circumstances, of one uniform theory of value."2
Fetter himself was so adamant about the subjective nature of value in economic theory that he disdained referring to the watershed of economic thought in the 1870's as the Marginalist Revolution, preferring the adjectives "subjective" or "psychological" to describe the new theory. He even rejected Leon Walras in the standard trilogy of revolutionaries because he thought Walras, unlike the other mathematical marginalist Stanley Jevons, did not agree that the essence of the revolution was the re-introduction of subjective value into value theory. In Fetter's revisionist account, the correct trilogy is Carl Menger (whose "Unusual vigor, independence, and originality of his mind seem to have been felt and esteemed by all those who came in contact with him..."), Jevons (whose "versatility, originality, and vigor of thought are evident on every page..."), and J.B. Clark (who "is classed by his friendly American critics in the list of the six ablest Anglo-American economists [and] is apparently conceded by all foreign critics the deanship of American theorists)."3
Deservedly, Fetter rose to the top of the American economics profession. His work was routinely published in the major journals: American Economic Review, Quarterly Journal of Economics, Journal of Political Economy. He held professorships at several prestigious colleges and universities and was invited to speak at major events held by prominent economic associations and to write commentary for the Encyclopedia of the Social Sciences on the discipline and for European scholars on American economic thought. He was an officer and eventually president of the American Economic Association and a member of the American Philosophical Society. In a rare tribute, he received a note commemorating his 80th birthday in the American Economic Review and a Memorial, in the same publication, upon his death.4
- 1. His dissertation was published as, Versuch einer Bevolkerungslehre ausgehend von einer Kritik des Malthus'schen Bevolkerungsprincips [An Essay on Population Doctrine based on a Critique of the Population Principles of Malthus] (Jena: Gustav Fischer, 1894). After writing a few articles on population before the end of the century and one in 1907, he made it the topic of his Annual Address of the President of the American Economic Association, see his "Population and Prosperity" American Economic Review, supplement, Vol. 3 (March 1913), pp. 5-19. His thesis was that civilizations are born and mature only by overcoming the Malthusian population problem. This is done by "volitional control" which includes institutional measures, like supplanting communal property with private property, and "psychic" or "social" motives, like caring for offspring and attaining a higher standard of living and a higher social class. See Fetter, Principles of Economics (New York: The Century Co., 1904), pp. 184-194. His first writings on value theory were "Theories of Value in Their Application to the Question of the Standard of Deferred Payments," American Economic Association Publications, supplement, Vol. 10 (March 1895), pp. 101-103 and "The Exploitation of Theories of Value in the Discussion of the Standard of Deferred Payments," Annals of the American Academy of Political and Social Science, Vol. 5 (May 1895), pp. 882-896.
- 2. Robert F. Hoxie, "Fetter's Theory of Value," Quarterly Journal of Economics, Vol. 19 (February 1905), pp. 210-211.
- 3. About the marginalists, Fetter wrote, "The names of Jevons, Menger, and J.B. Clark are most fully representative of the three creative sources of the marginal theory, though Böhm-Bawerk and Wieser have outstanding importance in some respects fully as great." See Fetter, "Value and the Larger Economics I: Rise of the Marginal Doctrine," Journal of Political Economy, Vol 31, Oct. 1923., p. 594. It was the combination of adherence to logic and concern for mankind that Fetter claimed led to the Marginalist revolution. "When both intellectual power and humanitarian interest are united in one person as in Jevons, or Menger, or J.B. Clark," said Fetter, "it is not surprising that something noteworthy happens in the history of economic thought," Ibid., p. 600. Fetter strove to emulate these men both in rigor of thought and depth of concern.
- 4. Howard and Kemmerer, "Frank Albert Fetter, A Birthday Note," and Brown, "Memorial: Frank Albert Fetter, 1863-1949."