Frank Albert Fetter, The Next Decade of Economic Theory

Frank Albert Fetter’s conference proceedings paper, originally published in 1901 and reprinted in 1977, argues that the utility revolution in value theory requires a reconstruction of the theory of distribution. Its subject is less the discovery of another principle than the removal of inherited categories that prevent economists from consistently applying principles they already accept. Fetter moves from an assessment of recent theoretical achievements to critiques of capital and rent, then connects these conceptual difficulties with industrial development. His concluding propositions turn that diagnosis into a research agenda. Although he acknowledges the uncertainty of forecasting intellectual change, he presents the reform of economic terminology as both logically necessary and practically urgent.

Fetter identifies the period beginning in 1885 with the ascendancy of utility theory, emphasizing Austrian economics, the renewed reception of Jevons, and American contributions to psychological analysis. This movement has revived abstract economics while enlarging its attention to wants, motives, and consumption. Marginal reasoning has become indispensable, and cost of production has lost its claim to furnish an ultimate explanation of value. Yet the relation between supply and utility still lacks a satisfactory formulation. The achievement is therefore substantial but incomplete: a general explanatory principle has emerged without a corresponding reconstruction of the categories through which economists explain production and distribution.

That a universal law of value is possible, which will explain in a broad way the value importance assigned to every economic agent, has become almost unconsciously, within the last few years, the firm conviction of students.

This expectation of universality undermines the customary assignment of separate laws to separate productive factors. For Fetter, the younger generation already treats ideas once fiercely contested as ordinary theoretical equipment. The task is to recognize their consequences, rather than preserve older distinctions through intellectual habit. Capital supplies his first major example. Its conventional definition as accumulated or embodied labor carries the labor theory of value into accounts that otherwise profess allegiance to utility. Natural resources requiring little labor nevertheless enter capital, while income described as rent received without labor becomes “capital” when its recipient invests it. These contradictions concern the organizing principle of the category, not merely exceptional cases.

Logical consistency demands that the capital concept be framed without reference to labor as its source or origin, and without limits as to its use.

Capital must accordingly be freed from a definition based on its historical production. The value of an economic good cannot depend ultimately on utility while its status as capital depends on past labor. Fetter extends this criticism to interest, whose conventional explanation remains attached to the supposedly labor-produced character of capital. He does not provide a complete replacement theory here; he establishes why changing the theory of value obliges economists to reconsider both the productive factors and their associated returns.

Rent presents the complementary difficulty. Traditionally, it designated a surplus obtained without human effort and thus functioned as a guarded exception to cost-of-production reasoning. Fetter questions whether the claim that rent does not enter production costs represents a genuine explanation or an “illogical trick.” Contemporary attempts to broaden rent reveal the instability of its inherited boundaries. Marshall’s quasi-rents make land rent one case within a larger class; Macfarlane and Hobson extend the category in different directions; Clark offers what Fetter considers the strongest available statement of an emancipated concept. These developments converge toward a general treatment of monopoly, scarcity, and differential gains, but they do not settle whether “rent” should name that entire field. His criticism of the old category therefore does not amount to an unqualified endorsement of its expansion.

The second movement of the paper explains why conceptual reconstruction cannot be understood as an exclusively internal development of theory.

The living questions and practical interests of to-day are having no less influence in determining the lines of economic speculation and the form it shall take.

Fetter traces the conventional opposition between land and capital to a historical compromise between agricultural and monetary economies. Economists inherited a physical conception of natural resources and their returns while applying a monetary conception to manufactured wealth and interest. What appeared to be distinctions between economic realities partly reflected inconsistent viewpoints. The increasing representation of natural resources through shares and bonds, together with the monetary valuation of nearly every kind of wealth, makes this mixture increasingly obstructive. Unifying capital is thus a response to commercial practice as well as a demand of theoretical consistency.

Industrial concentration similarly exposes the inadequacy of the old rent theory. Public franchises, corporations, trusts, and monopolies make scarcity gains pervasive rather than exceptional. Such gains may arise from social changes beyond the recipient’s control or from deliberate capitalist manipulation. A theory organized around land as the conspicuous exception to labor-based value cannot adequately explain this wider field.

The Ricardian law of rent is being relegated by industrial development to the curiosity shop of outgrown economic theories.

Fetter closes by demanding a commercially relevant capital concept, abandonment of the conventional division of productive factors, rejection of labor units as standards of value, and reconsideration of rent and interest as different modes of calculating returns rather than returns belonging to different kinds of agents. The paper’s significance lies in bringing marginal value theory to bear on distribution while explaining why modern enterprise makes that extension necessary. Its deliberately programmatic conclusion seeks to direct inquiry and reduce the intellectual friction of an anticipated transition, rather than claim that the new system is already complete.