Article Summary: Pure theory and progressive liberalism: Frank Fetter and the Austrian economists,” Matthew McCaffrey

Summary of JOIE article (First View, 04 October 2019) by Mathew McCaffrey, Lecturer in Enterprise, Alliance Manchester Business School. The full article is available on the joie website

In the fifty years spanning 1900-1950, Frank Albert Fetter was one of best-known economists in the United States. He was especially notable for his path-breaking research in economic theory, particularly in the areas of value, price, and distribution (e.g. Fetter, 1977). His body of work built mainly on the insights of the Austrian School, and Fetter likely did more than any other economist to bring that tradition to the Unites States in its early decades. Today, however, Fetter is mostly forgotten among economists, even those in the contemporary Austrian tradition that he helped to cultivate. If anything, Fetter is remembered as a kind of spiritual successor to the early Austrians who developed his own ideas in relative isolation and without much interaction with the Viennese economists.

However, a large body of hitherto-unknown evidence tells quite a different story. Fetter’s unpublished papers, journals, and correspondence reveal a history of close contact with the Austrians spanning several decades, especially during the interwar period. His personal friends and professional correspondents included many leading Austrians and “fellow-travelers,” including Eugen von Böhm-Bawerk, Gottfried Haberler, Henry Hazlitt, W. H. Hutt, Fritz Machlup, Hans Mayer, Carl Menger, Ludwig von Mises, Oskar Morgenstern, Joseph Schumpeter, and Friedrich von Wieser. The archival records reveal not only that Fetter was actively engaged with the Austrians throughout his career, but also that many of them looked to him for theoretical insight, professional advice, and personal friendship. Furthermore, the historical materials bring to light a wide range of information about the lives, works, and personal relations of the Austrians that have not been included in their biographies or institutional histories. They represent a kind of parallel history of the Austrian school from 1900-1950 that extends far beyond the conventional accounts of its major figures.

Like many American economists around the turn of the century, Fetter received his economic training from the German Historical School. Yet he quickly discovered and absorbed the emerging body of Austrian doctrine as well. He was particularly interested in expanding the logic of the subjective theory of value and using it to develop a complete and consistent account of distribution theory that would do away once and for all with the Ricardian-Marshallian tradition. To do this, Fetter drew heavily on the works of Menger, Böhm-Bawerk, and Wieser, and sought them out in person. With Böhm-Bawerk especially he became close friends, and they exchanged letters until shortly before the latter’s death in 1914. Although they disagreed on topics like the pure time-preference theory of interest (which would later influence Ludwig von Mises), Böhm-Bawerk recognized a deep intellectual affinity with Fetter. To take one example, he praised Fetter’s 1912 paper on “The Definition of Price,” which extensively surveyed economic opinion on that topic:

The method that you follow in [the paper], is Daedalian and original, and has led to a good number of insightful and unexpected results. Moreover, I rejoiced in many a fine use of terms that you incorporated into the analysis of your historical-statistical material. They definitely made a good and important step toward the improvement and standardization of that instrument of our scientific inquiries that we refer to as terminology. (Böhm-Bawerk, 1913)

As Hayek recounts, after the turn of the century there were numerous efforts by the Austrians to contact eminent economists from the United States. Fetter was one such, and he not only visited Vienna, but also entertained some of the younger Viennese economists at his own home in Princeton. These included a young Joseph Schumpeter, who was deeply impressed by Fetter, and, true to form, caused a minor sensation in the Fetter household with his extravagant behavior.

Fetter’s international standing at this time appears mainly due to Böhm-Bawerk, who encouraged Mises, for example, to study the works of the Americans (Mises, 2008: 119). Böhm-Bawerk had already debated Fetter and formed a personal friendship with him several years before Schumpeter’s trip abroad. Moreover, Schumpeter read Fetter extensively before meeting him, and he reviewed his first textbook The Principles of Economics(Fetter, 1905a). Schumpeter’s appraisal was quite positive, noting that it “surely deserves special attention, not only as a textbook that is rich in content, but also as a scientific achievement.” He went on to explain that Fetter’s value theory is “very attractive and clear,” and that it will “strike a chord with those of the proponents of the Austrian school. Indeed, Fetter is much closer to the latter than the other American theorists” (Schumpeter, 1908b, 2018). This is consistent with Fetter’s own intention for the book, which, as he explained in a letter to Herbert Davenport, was “to give the generally accepted Austrian analysis of marginal utility” (Fetter, 1905b). Later in life, Schumpeter would honor Fetter by describing him as an important and original theorist who “erected a building that was his own,” as opposed to simply following in the tracks of others (Schumpeter, 1954: 874).

The First World War created a rift between the Austrian and American economists, but after the conflict, cordial relations resumed. To celebrate the 80thbirthday of Carl Menger, the Austrians coined a series of medals which they sent to sympathetic economists in the US, including Fetter (Schumpeter, 1920). Then, in 1926, Ludwig von Mises, by that point an acknowledged leader of the younger generation, visited Fetter at Princeton (Fetter, 1938b). They seem to have discussed the problems of interest and business cycles—a topic both men were exploring at the time—and they continued to follow each other’s work for many years. Later, while drafting his Nationalökonomie, Mises told Fetter candidly that, “In these last months I have reread your contributions on the theory of interest. It is my firm opinion that they are more important than any other contribution on the subject since Böhm-Bawerk. I am indebted to them” (Mises, 1938). Fetter’s professional and intellectual support was likewise sought by the younger scholars in and around Mises’s circle. Gottfried Haberler also met Fetter in America, and also developed a lasting friendship. He eventually came to rely on Fetter in his teaching at Harvard, writing that he was in constant need of his papers on value theory for his lectures on welfare economics (Haberler, 1932).

In the inter-war period Fetter also played a pivotal role in another significant event in the history of the Austrian school: he was the North American editor of a festschrift for Wieser. The four-volume collection featured contributions from dozens of the most influential economists from around the world, all gathered into a series of definitive accounts of the present state of economics. Wieser’s protégé Hans Mayer initiated the project and invited Fetter to serve as editor, and Fetter’s assistant was Oskar Morgenstern, who was then visiting the United States after completing his PhD.

Fetter’s own contribution to the collection surveyed economic thought in the United States, especially as it related to questions in value theory and the success of Austrian ideas in America. It was well-received by the Austrians, and Morgenstern later wrote to say that, “Here [in Vienna] everybody is charmed by your paper on Economics in America which is said to be the best paper in the first volume… I must confess that it gives the best picture of the present situation of American economics I can imagine” (Morgenstern, 1927). Other young Austrians worked during the inter-war period to keep Fetter’s work alive in economics. For example, Lionel Robbins and F.A. Hayek attempted to republish some of Fetter’s more influential papers on value, distribution, and population, although the planned collection never materialized. These are only a small sampling of the kinds of personal and professional connections enjoyed by Fetter and the Austrians.

Importantly, politics and public policy was one area in which Fetter did not see eye-to-eye with some Austrians. Although Fetter, like Mises and Hayek, thought of himself as a true liberal, he was also influenced by the progressive political currents that were popular in his youth. He criticised, for example, Mises’s support for a policy of free immigration, and believed that laissez-faire policies would allow for industrial concentration and monopolization, which he strongly opposed. In this capacity, he aided in several of the Federal Trade Commission’s antitrust cases. Nevertheless, he was a firm opponent of the New Deal and of easy monetary policy, major targets of Austrian criticism.

Fetter’s work continues to inspire new research both inside and outside the modern Austrian tradition (for further discussion, see McCaffrey, 2019, and the corresponding “Liberty Matters” forum, which discusses the past and future of Fetter’s research program). Many aspects of his writing are worth pursuing, including his

  • unique mixture of intellectual influences, including his progressive-era political and policy views, all of which can shed new light on debates about the history of American economics;
  • work on the Wieser festschrift, a neglected but highly significant part of the history and legacy of the Austrian school around the world, and its relation to other schools of thought; 
  • theoretical and applied work on monopoly, and its overlap and conflict with Austrian theory and laissez-faire economic policy recommendations
  • research on capital, interest, rent, and entrepreneurship;
  • distribution theory and its application to research on firms and organizations;
  • distribution theory and its application to research on business cycles and financial crises.

Each of these topics is timely, and provides ample reason to reconsider Fetter’s work in its own right, as well as with respect to many larger questions it raises about the history of economic thought and its implications for the state of the modern economics profession.


Böhm-Bawerk, E. von. (1913). Letter to Frank A. Fetter, dated 29 March. FAF, Box 7, Folder: Correspondence 1913–1914.

Fetter, F. A. (1905a). The Principles of Economics, with Applications to Practical Problems, New York: Century.

Fetter, F. A. (1905b). Letter to Herbert J. Davenport, dated 2 December. FAF, Box 7, Folder: Correspondence 1905–1906.

Fetter, F.A. (1912). “The Definition of Price.” American Economic Review, 2: 783–813.

Fetter, F. A. (1938b). Letter to Ludwig von Mises, dated 15 January. FAF, Box 2, Folder: Correspondence 1938 Jan.–June.

Fetter, F. A. (1977). Capital, Interest, and Rent: Essays in the Theory of Distribution, edited by M. N. Rothbard. Menlo Park, CA: Institute for Humane Studies.

Haberler, G. (1932). Letter to Frank A. Fetter, dated 12 February. FAF, Box 1, Folder: Correspondence 1932, Jan.–May.

McCaffrey, M. 2019. “Frank Fetter and the Austrian Tradition in the United States.” Liberty Matters. Available at:

Mises, L. von. (1938). Letter to Frank A. Fetter, dated 5 February. FAF, Box 2, Folder: Correspondence 1938, Jan.–June.

Mises, L. von. (2008). Planning for Freedom: Let the Market System Work: A Collection of Essays and Addresses, edited by B.B. Greaves, Indianapolis, IN: Liberty Fund.

Morgenstern, O. (1927). Letter to Frank A. Fetter, dated 10 December. FAF, Box 1, Folder: Correspondence 1927.

Schumpeter, J. A. (1908b). “Einige neuere Erscheinungen auf dem Gebiete der theoretischen “Nationalökonomie”.“Zeitschrift für Volkswirtschaft, 17: 402–420.

Schumpeter, J. A. (1920). Letter to Frank A. Fetter, dated 7 December. FAF, Box 1, Folder: Correspondence 1920.

Schumpeter, J. A. (2018),. “Schumpeter’s Review of Frank A. Fetter’s Principles of Economics.” Translated by K.-F. Israel, Quarterly Journal of Austrian Economics, 21(1): 52–59.

Schumpeter, J. A. (1954). History of Economic Analysis, New York: Oxford University Press.

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