Harvard. Theory of income distribution. Frank A. Fetter, 1906-1907

With Thomas Nixon Carver off to Europe for a sabbatical year in 1906-07, the Harvard economics department brought in Frank A. Fetter from Cornell to cover two of Carver’s standard courses: one on the economic theory of income distribution and the other that surveyed methods of social reform (socialism, communism, etc.). The artifact for today is Fetter’s final exam for the fall semester course on “The Distribution of Wealth” [still a time when most economists, like everyone else, confounded income and wealth].

Frank A. Fetter is revered today as an early 20th century American pioneer of Austrian economics. A 2019 discussion of Matthew McCaffrey’s “Frank Fetter and the Austrian Tradition in the United States” can be found at the Online Library of Liberty.

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Course Enrollment

Economics 14a ¹hf. Professor [Frank Albert] Fetter (Cornell University). — The Distribution of Wealth.

Total 33: 5 Graduates, 12 Seniors, 9 Juniors, 4 Sophomores, 3 Others.

Source: Harvard University. Report of the President of Harvard College, 1906-1907, p. 71.

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ECONOMICS 14a
Mid-year Examination, 1906-07

Answer ten.

1. Indicate in regard to each of the following writers: Turgot, Ricardo, Mill, Cairnes, Marshall, Carver, first, what was the main idea we studied? second, what was his place in the progress of economic thought on this subject?
2. Define Ricardo’s capital concept and the one developed in this course. Give three examples of practical problems where the capital concept is used in business, and show how each definition applies.
3. [Value theory]
   1. “It remains to be considered whether the creation of rent will occasion any variation in the relative value of commodities, independently of the quantity of labor necessary to production.”
   2. “If the quantity of labour realized in commodities, regulate their exchangeable value, every increase of the quantity of labour must augment the value of that commodity on which it is exercised, as every diminution must lower it.”
   3. “Rent invariably proceeds from the employment of an additional quantity of labour with a proportionately less return.”
   4. “The exchangeable value of all commodities … is always regulated … by the greater quantity of labour necessarily bestowed on their production … by those who continue to produce them under the most unfavorable circumstances.”
   5. “The original rule which regulated the exchangeable value of commodities … can not be at all altered by the payment of rent.” Who wrote this?

Comment on these passages showing clearly what question is proposed, and how far the conclusion is based upon the argument advanced

4. [and] 5. “Demand and supply govern the value of all things which can not be indefinitely increased; except that even for them, when produced by industry, there is a minimum value, determined by the cost of production … Demand and supply, while thus ruling the oscillations of value, themselves obey a superior force, which makes them gravitate towards Cost of Production.”
   “What the production of a thing costs to its producer is the labour expended in producing it. If we consider as the producer the capitalist who makes the advances, the word Labour may be replaced by the word Wages; what the produce costs to him, is the wages which he has had to pay.”
   “Wages do enter into value. The relative wages … affect value just as much as the relative quantities of labour.”
   “There are commodities of which the value never depends upon anything but demand and supply. This is the case in particular with the commodity Labour.”
   1. How does this doctrine differ from Ricardo’s quantity-of-labor theory?
   2. What conclusion may be drawn from a combination of paragraphs one and four?
   3. Criticise the cost-of-production theory contained in the quotations. Whose theory is it?

6. Give the substance of Cairnes’ argument (the part read) and show how it differs from Mill’s.
7. Show what kinds of income and stages of income there are. What is the ultimate form taken by income, and why?
8. Explain the simplest problem of valuation by an individual, and the psychological data that must be taken account of.
9. Define and explain capitalization as presented in the course and show its relation to property and wealth.
10. Discuss the following distinctions:
    1. The subjective and the objective methods of classifying incomes.
    2. Utility and subjective values.
11. Outline briefly the positive theory of distribution here presented.

Source: Harvard University Archives. Harvard University. Mid-year Examinations, 1852-1943. Box 7, Bound Volume: Examination Papers, Mid-Years 1906-07.

Image Source: 1902 Classbook, Cornell University, p. 21.