Frank Albert Fetter on Cassel and Böhm-Bawerk: Interest and the Capital Concept

Frank Albert Fetter’s journal book review, originally published in 1905 and reprinted in 1977, examines two contributions to the theory of interest: Eugen von Böhm-Bawerk’s Recent Literature on Interest and Gustav Cassel’s The Nature and Necessity of Interest. Its organizing judgment is that neither author possesses a sufficiently consistent conception of capital to explain interest comprehensively. Fetter nevertheless distinguishes sharply between Böhm-Bawerk’s largely defensive restatement of an established theory and Cassel’s more valuable investigation of why interest remains necessary. The review moves from criticism of Böhm-Bawerk’s eclectic explanation, through examination of Cassel’s account of “waiting,” to qualified approval of Cassel’s analysis of falling interest rates.

Fetter first situates Böhm-Bawerk’s volume as a translation of material added to the second German edition of his history and criticism of interest theories. He acknowledges the work’s importance by reproducing the translators’ praise of its critical and analytical achievement. The supplement chiefly answers Marshall, Carver, Wieser, and advocates of labor-cost and exploitation theories; its engagement with John Rae also receives attention. Yet the distinction between stimulating criticism and advancing a positive explanation governs Fetter’s assessment:

The book has, on the whole, a negative rather than a positive character.

This judgment concerns theoretical movement, not simply the proportion of the book devoted to criticism. Fetter argues that Böhm-Bawerk largely maintains the position he had established fifteen years earlier. More explicitly than before, he now accepts an eclectic explanation combining psychological and technical elements. Although he rejects productivity theory as a complete solution, he continues to assign explanatory importance to the productivity of roundabout production. For Fetter, calling this only one component of the explanation does not remove its character as a productivity theory.

The objection is therefore stronger than a preference for theoretical simplicity. Böhm-Bawerk’s insistence that a correct solution must combine different explanations disappoints the ambitions of his original inquiry. His critique of productivity theories has not yielded an account that consistently supersedes them. Fetter locates the underlying problem in the conceptual framework:

His whole discussion goes astray for lack of a consistent conception of capital.

A satisfactory capital concept would permit interest to be treated within the broader problem of time-discount. Fetter sees Böhm-Bawerk occasionally approaching that perspective but failing to develop it. He also faults him for remaining untouched by the newer literature associated with J. B. Clark and Irving Fisher. These references identify the direction in which Fetter believes the debate should move: reconsidering what capital means, rather than repeatedly contesting established explanations on their inherited terms. His verdict that the argument merely “marks time” thus connects its lack of progress to a failure of conceptual revision.

Cassel supplies a contrasting starting point by defining interest as payment for waiting. Fetter notes Cassel’s criticism of Böhm-Bawerk’s historical account and welcomes his objections to the roundabout-process explanation, which resemble objections Fetter had previously published. Agreement on those criticisms, however, does not establish the adequacy of Cassel’s alternative. Cassel connects waiting to capital, then restricts capital to produced goods, excluding consumable goods already held by consumers. That restriction prevents waiting from operating as the general explanatory principle it promises to be:

He does not see that waiting may be present both in the case of consumable goods in the hands of the consumer and in the case of land (which, in the old-fashioned way, he usually thinks of as not being an object of waiting).

The passage makes Fetter’s central conceptual move explicit. Waiting cannot be confined to a conventionally bounded class of productive objects: it may also concern consumer-held goods and land. Cassel momentarily approaches a broader position when he distinguishes payment for concrete capital from payment for goods in general, but Fetter finds this inconsistent with his restrictive definition. A complete theory of time-discount requires a conception broad enough to encompass cases that the inherited classification leaves outside capital. The review does not fully construct that theory; it uses its requirements to expose the limits of both books.

Fetter’s final assessment turns from Cassel’s explanation of interest to his argument for its necessity. Here the review becomes distinctly appreciative. Cassel examines how human motives would change if interest fell from three percent to two percent or below, and describes the resulting shift in the margin at which agents are applied. Fetter values this discussion as an analysis of the consequences of lower rates, rather than merely an assertion that interest must persist:

The argument is strong as directed against the notions of the over-production of capital and the fallacy of saving.

Cassel’s contribution should therefore be judged chiefly by this more original investigation. The review’s significance lies in its discrimination between explanatory completeness and useful theoretical work. Fetter rejects both authors’ capital concepts as inadequate to a general account of time-discount, while preserving Cassel’s analysis of the necessity of interest as a substantive achievement. His governing demand is that interest theory advance through a coherent conceptual foundation, not through defensive repetition or an unresolved combination of explanations.