time traveler

Herbert Joseph Davenport (1861-1931) was an American economist. Born in Vermont, Davenport began his formal career as assistant professor at the University of Chicago in 1902. During his previous 41 years, he had attended Harvard Law School, the University of Leipzig, Ecole Libre des Sciences Politiques in Paris, the University of South Dakota, and the University of Chicago. He also made and lost a fortune in business, largely in land speculation. Following his degree at Chicago on 1898, he became a high school principal before returning to Chicago as a faculty member. He moved to the University of Missouri to become department head and first dean of the College of Business in 1908. The Herbert J. Davenport Society is the University of Missouri–Columbia College of Business’s alumni organization. In 1916, he transferred to Cornell, where he finished his academic career.

At Chicago, he studied for a year or so under Thorstein Veblen, with whom he formed a lifelong friendship. At Cornell, he supervised Frank Knight’s thesis, until this task was taken over by Allyn Young. His studies were apparently motivated, like many other revolutionary political economists of his time, by a desire to find the flaws in socialism (Homan: 1931: 696).

Davenport wrote numerous articles which were published in such prestigious economic journals as the Journal of Political Economy, the Quarterly Journal of Economics and the American Economic Review.

He also wrote several major books. His first article, written while an undergraduate in South Dakota, was "The Formula of Sacrifice" (1974), an exploration of the concept of subjective opportunity cost. Viewed in retrospect, his "Outlines of Economic Theory" was a preliminary version of his 1908 Value and Distribution (1908). The latter was a full-fledged critical examination of the major economic doctrines of classical and early neoclassical thought. Among other things, it contained critiques of marginal utility, of the contemporary Austrian theories of capital and cost, and of Frank Fetter‘s theory of market interest.

While he had a penchant for criticizing the emerging neoclassical economics, most of his criticism was leveled as vestiges of classical economics, such as the doctrine of real cost and the tripartite division of factors of production, which had led some classical economists to advocate a tax on land value. Although one biographer and student saw him as a reformer (Homan), another lamented the absence of real reformist ideas and even of the awareness of the need to follow criticism with clear statements about what was right and how it could be achieved (Frank Knight). His relentless criticism is probably the main reason that his works have, in general, been neglected by historians of economic thought.

The extensive citations and treatment of economic others ideas in this book were omitted in his later book The Economics of Enterprise (1914). This book was a tightly-knit theory of price from the entrepreneur point of view (to be contrasted with the "social" point of view). In that book, he worked out an image of economic interaction in which all phenomena was interpreted through the eyes and minds of entrepreneurs. This theory was complemented by a theory of credit and money for the era of free enterprise in banking ("loan fund theory of capital").

An admirer of Thorstein Veblen, Davenport carved a unique niche in the world of academic economics, avoiding the Institutionalist approach inspired by Veblen, and incorporating insights from the Austrian and Lausanne economists. For Davenport, the entrepreneur was central to market activity. He accepted the Austrian concept of opportunity cost (found in the work of Friedrich von Wieser) but not marginal utility. He was a relentless critic of Alfred Marshall, his last book being a critique of The Economics of Alfred Marshall (1935). In that book, he criticized Marshall as a classical economist who subscribed to the real cost doctrine and his assumption of homogeneity of different costs.

Davenport, along with Frank A. Fetter, comprised, as Fetter put it, a distinct, if small, school of economics: the American Psychological School. Frank Knight, a student and admirer of Davenport’s, did not succeed in imprinting many of Davenport’s ideas onto the Chicago neoclassical tradition.

As a teacher, he was an artist. "He never lectured in any conservative way. He pitted his students against one another. He subjected them to grilling cross-examination capped by the decisive point and apt illustration, punctuated by satirical amusement toward the inept and the unprepared” (Homan: 699). Perhaps the best reflection on Davenport as a person comes from the fact that for many years, he used his savings to pay friends in South Dakota who had made real estate investments through him in the early 1890s (Kendrick: 224).

 

Frank Albert Fetter was an American economist of the Austrian School. He was born in Peru, Indiana to a Quaker family during the height of the American Civil War. Fetter proved an able student as a youth, as demonstrated by his acceptance to Indiana University in 1879 when he was only sixteen years old. Fetter was on track to graduate with the class of 1883, but left college to run his family’s bookstore upon news of his father’s declining health. Working in the bookstore offered an opportunity for the young man to acquaint himself with some of the economic ideas that would later prove formative. Chief among the intellectual influences Fetter encountered at this time was Henry George‘s Progress and Poverty (1879).

After eight years, Fetter returned to academia and finally completed his B.A. in 1891. In 1892, Jeremiah W. Jenks—who had taught Fetter at Indiana University—acquired a teaching position at Cornell University and subsequently secured a fellowship for Fetter at that institution. Fetter completed his Master of Philosophy degree the same year. Jenks then convinced Fetter to study, as Jenks himself had, under Johannes Conrad at the Sorbonne in Paris, France. Fetter earned his Ph.D. in 1894 from the University of Halle in Germany, where he wrote his doctoral dissertation, a critique of Malthusian population theory.

After earning his doctoral degree, Fetter accepted an instructorship at Cornell, but quickly left after being offered a position as a professor at Indiana University. In 1898, Stanford University lured him away from Indiana, but Fetter resigned from Stanford three years later over a dispute regarding academic freedom. After leaving Stanford in 1901, Fetter went back to Cornell, where he remained for ten years. In 1911, he again found himself in professional transition, accepting the position of chairman in an interdisciplinary department at Princeton University which incorporated history, politics, and economics. Fetter was the first chairman of Princeton University’s Department of Economics and Social institutions.

Despite his ideological proximity and personal rapport with eminent Austrian School economists such as Eugen von Böhm-Bawerk and Friedrich von Wieser, as well as his favorable reviews of works by Ludwig von Mises and F.A. Hayek, Fetter referred to himself, Thorstein Veblen, and Herbert J. Davenport more specifically as being members of the "American Psychological School." The appellation "Psychological School" is now generally considered to be synonymous with "Austrian School."

Fetter was a staunch opponent of Franklin D. Roosevelt’s plan to end the gold standard and worked with other economists in lobbying against the move to a fiat currency. As some indication of Fetter’s role in these efforts, "In January 1933, a letter was sent to the president-elect, urging him not only to lower tariff barriers to revive international trade, but to maintain the gold standard "unflinchingly." The letter was signed by a number of prominent "traditional" economists, headed by the American "Austrian," Frank A. Fetter, of Princeton.

Fetter participated in a notable debate with English economist Alfred Marshall, both through his 1904 Principles of Economics and a number of journal articles in the American Economic Association‘s journals and in the Quarterly Journal of Economics. He contested Marshall’s position that land is theoretically distinct from capital. Fetter argued that such a distinction was impractical, stating that, "The notion that it is a simple matter to distinguish between the yield of natural agents and that of improvements is fanciful and confusing…. The objective classification of land and capital as natural and artificial agents is a task that always must transcend the human power of discrimination."
Fetter’s stand on this issue further led him to oppose Georgist ideas like the land value tax. Mark Blaug, a specialist in the history of economic thought, credits Fetter and J.B. Clark with influencing mainstream economists to abandon the idea "that land is a unique factor of production and hence that there is any special need for a special theory of ground rent…. This is in fact the basis on all the attacks on Henry George by contemporary economists and certainly the fundamental reason why professional economists increasingly ignored him."

Fetter believed in the subjective theory of value, and thus supported a pure time preference theory of interest. Richard Ebeling wrote that Fetter "constructed a consistent theory of value, price, cost, and production in the context of emphasizing the time-valuational element in all consumption and production choices." According to Jeffrey Herbener, Fetter asserted 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."

Likewise, Herbener explains, this led Fetter to also conclude that "[t]he 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’s contribution to the Austrian subjectivist tradition, then, is that he "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."
In "Interest Theories, Old and New" (1914), he criticized Irving Fisher for abandoning the pure time-preference theory of interest that Fisher had earlier espoused in his 1907 book, The Rate of Interest, a tome which had heavily influenced Fetter. As Murray Rothbard recounts, upon further review of Fisher’s earlier work,

…Fetter discovered that the seeds of error were in Fisher’s publication of 1907. Fisher had stated that valuations of present and future goods imply a preexisting money rate of interest, thereby suggesting that a pure time-preference explanation of interest involves circular reasoning. By way of contrast, and in the course of explaining his own pure time-preference, or "capitalization," theory of interest, Fetter showed that time valuation is prerequisite to the determination of the market rate of interest.

In 1909, at the age of forty-six, Fetter was awarded an honorary LL.D. from Colgate University, and he was made president of the American Economic Association in 1913. Additional honorary doctoral degrees were conferred on Fetter by Occidental College in 1930 and Indiana University in 1934. He was a fellow of the American Academy of Arts and Sciences and a member of the American Philosophical Society. In 1927, he was awarded the Karl Menger Medal by the Austrian Economic Society.

Fetter’s treatise, Principles of Economics (1904), has been described by Herbener as "unsurpassed until Ludwig von Mises‘s treatise of 1940, Nationaloekonomie (German: national economy)." In Rothbard’s preface to the 1977 edition of Fetter’s Capital, Interest, and Rent, he notes that he was first introduced to Fetter’s work via a citation in Mises’ Human Action and describes Fetter’s views on interest and rent as being "Austrian" and influential on his own views.

…while reading Fetter’s oeuvre in the course of writing my Man, Economy, and State… I was struck by the brilliance and consistency of his integrated theory of distribution and by the neglect of Fetter in current histories of economic thought, even by those that are Austrian oriented. For Fetter’s systematic theory, while challenging and original (particularly his theories of interest and rent), was emphatically in the Austrian school tradition.
Upon Fetter’s death in 1949, J. Douglas Brown, who would later be named Provost of Princeton University, wrote a "Memorial" to Fetter for the American Economic Review. He opened the tribute with the announcement that "with the death of Frank Albert Fetter the great company of American economists has suffered an irreparable loss."