Frank Albert Fetter: Review of Böhm-Bawerk, Einige strittige Fragen der Capitalstheorie

Frank Albert Fetter’s book review, originally published in 1902 and reprinted in 1977, assesses Böhm-Bawerk’s defense of his capital and interest theory against contemporary critics. The reviewed pamphlet collects three articles published in 1899 and addresses five distinguishable subjects. Fetter rearranges their presentation: he briefly surveys four subsidiary controversies before examining the dominant question, the productivity of “roundabout” production. His central judgment distinguishes argumentative success from theoretical progress. Böhm-Bawerk effectively answers several objections, but does not resolve the tension between explaining interest through productive processes and explaining it through differences in the value of present and future goods.

The subsidiary disputes establish the review’s initially appreciative tone. Fetter endorses Böhm-Bawerk’s separation of interest from entrepreneurial earnings against Philippovich and praises his criticism of Dietzel’s proposal to employ different interest theories for different problems. Such eclecticism, in Fetter’s account, avoids the need for a coherent explanation. Böhm-Bawerk also answers Philippovich’s charge that his theory covers only some instances of interest and attacks Lexis’s acceptance of socialist exploitation theory without its supporting reasoning. These notices reveal Fetter’s concern with conceptual distinctions and explanatory consistency, standards he subsequently applies to Böhm-Bawerk himself.

The central discussion concerns the “average production period”: the average interval between the application of productive agents and their eventual reward in satisfaction. Böhm-Bawerk distinguishes this from the entire elapsed time between the first productive effort and final enjoyment. Against objections based on inventions that simultaneously shorten processes and increase output, he treats technical improvements as dynamic factors that check, without reversing, the interest-rate movement described by his theory. He also defends the greater productivity of longer production periods through observation and experience. Fetter reports these arguments carefully without treating their elaboration as proof that the underlying explanation is adequate.

A related dispute with Lexis asks whether the interest rate is determined across industry or within a particular branch. Böhm-Bawerk explains how capital’s successive uses and interest rates become equalized among industries. Fetter finds this subtle and convincing from the standpoint shared by the disputants, but reserves judgment about the adequacy of that standpoint. His reservation becomes explicit when Böhm-Bawerk defends the production period despite admitting that it cannot be measured:

Not a single concrete example has been given where an individual producer practically measures this period, whereas in the cases of cost of production and of the marginal buyer in market value, which Böhm-Bawerk adduces as strict analogies, there are clearly evident some points at which the magnitudes of satisfaction or cost, usually unmeasured, appear for a moment in concrete and measurable forms.

Fetter’s objection is not simply that an unmeasurable cause cannot exist. Rather, Böhm-Bawerk’s analogies fail to show how the proposed magnitude becomes concrete in economic practice. Costs and marginal valuations have observable points of contact with decisions; the average production period has not been given an equivalent demonstration. This criticism supports Fetter’s broader distinction between rebutting an opponent and advancing an explanation:

Considering as a whole the author's argument on the central theme, it can be called successful only in a negative way, as a refutation of various objections that have been made against it.

The deeper difficulty is the status of productivity within the theory of interest. Böhm-Bawerk had criticized productivity theories as incomplete, yet his defense now places the greater productivity of labor employed through long, indirect processes at the center of the explanation. Fetter therefore asks whether roundabout productivity is fundamental or merely supplementary. Making it the efficient cause of interest conflicts both with Böhm-Bawerk’s earlier criticisms and with his formal account of interest as the difference between present and future goods’ values.

Fetter traces this wavering to a restrictive concept of capital as things produced by labor. That definition encourages an image of labor embodied in material objects and eventually consumed as enjoyment, retaining elements of the labor-value reasoning Böhm-Bawerk otherwise rejected. The Isthmian canal supplies a counterexample: labor creates an enduring productive asset yielding annual enjoyment, rather than a product destined to disappear into consumption. The capitalization of land presents an even sharper challenge:

Indeed, his capital concept is a cost-of-production concept and does not make possible a consistent explanation of the theory of interest or the capitalization of scarce agents—"natural" means of production.

Scarce natural agents possess capital values without a sequence of labor applications maturing into consumable goods. Their capitalization instead involves comparing present and future rentals. On this account, a falling interest rate corresponds to future rents gaining value relative to present rents and consequently being discounted less heavily. Fetter thus shifts the explanatory emphasis from the technical history of production to the valuation of income over time.

The review closes with respect for Böhm-Bawerk’s contribution but a definite proposal for theoretical reconstruction:

And that development clearly lies along the lines of a value concept, as opposed to a cost-of-production concept of capital.

Its significance lies in this conceptual redirection. Fetter does not offer a complete replacement theory here; he identifies why a production-centered account cannot consistently encompass enduring assets and scarce natural resources. His review makes capitalization, rather than embodied labor or the length of a productive process, the decisive test of a general theory of capital and interest.