Frank Albert Fetter, Davenport’s Competitive Economics (1914)

Frank Albert Fetter’s review of Herbert Joseph Davenport’s The Economics of Enterprise assesses its contribution to the reconstruction of economic theory. Across five sections, Fetter distinguishes advances shared with the psychological school from Davenport’s restrictive definition of economics, his explanation of interest, and his indictment of private property. His central objection is that Davenport adopts important elements of newer theory without adequately acknowledging their origins, then draws conclusions those principles do not warrant.

Judgments will vary as to what are the main propositions of this book.

Fetter identifies substantial achievements: abandoning the distinction between land and artificial capital, understanding capital through value and capitalization, and interpreting production costs as business calculations dependent on prices. He also endorses the distinction between private acquisition and social welfare. These propositions, however, belong to a broader theoretical movement. Davenport’s inadequate references obscure both intellectual debts and relationships among competing doctrines. For Fetter, attribution clarifies arguments as well as assigning priority.

His criticism nevertheless allows for theoretical cooperation:

There are many of us who should like to agree with the main features of the author's arguments.

Davenport’s profession of conservatism complicates that alliance. Fetter finds the preface difficult to reconcile with the book’s theoretical departures and radical social conclusions:

Whether the preface is meant as a bit of mischievous humor to confuse the conservative critics, or whether as an apology, or whether as an odd way of showing contrition for the radical conclusions of the final chapter, is still an enigma.

The second section challenges Davenport’s restriction of economics to monetary exchange. A value concept of capital can distinguish private possessions from social resources without excluding social questions from economics. Making price the discipline’s boundary threatens to exclude subjective valuation, self-sufficient production, barter, and nonmonetary income. Davenport’s subsequent resort to hypothetical prices effectively restores elements his definition had excluded. Fetter’s objection is substantive: imagined exchange prices cannot substitute for an explanation of valuation, and money transactions cannot exhaust economic life.

The central sections examine interest. Davenport’s loan-fund theory assigns purchasing power embodied in money and credit a determining role in interest and capitalization. Fetter tests it against an imaginary community involving cattle ownership, farmers’ debts, and railroad financing. He argues that the example confuses debts with resources available for lending and with the medium through which lending occurs. An owner’s willingness to defer consumption and transfer command over resources remains significant whether the transaction uses cattle, cash, or credit. Banking facilitates such transfers, but its capacity to create deposit credits does not establish a general explanation of interest. Davenport’s eventual limitation of banking’s long-run effects chiefly to prices and risk premiums further weakens that explanatory claim.

Fetter also challenges Davenport’s combination of capitalization, abstinence, psychological perspective, and technical productivity. Davenport’s hypothetical case of goods doubling overnight assumes unchanged prices to suggest an exceptionally high interest rate. Fetter objects that this suppresses the adjustments requiring explanation: increased output could reduce future selling prices, while competition could raise present prices of productive goods. Physical productivity alone therefore cannot establish a value surplus accruing as interest. The valuation of future returns must enter the account rather than being bypassed by an example of physical increase.

The final section considers the social implications of identifying economics with competitive price. Davenport correctly recognizes that profitable possessions need not advance social welfare, but Fetter rejects extending this distinction into an indiscriminate condemnation of economic theory and private income. He interprets Davenport’s attack on appropriated social wealth as reviving a labor-based justification of property, not as a necessary implication of the value concept of capital.

Fetter instead advocates evaluating property through historical inquiry, social expediency, and institutional consequences. His defense is conditional: fraud and corruption require resistance, and property boundaries remain subject to revision through experience. The review seeks to preserve both private valuation and public welfare as legitimate objects of economics. Its disagreement with Davenport concerns the narrowing of economic inquiry and the overextension of theoretical conclusions, rather than the need for social criticism itself.