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Ross Emmett is the John P. Tandberg Chair and Associate
Professor of Economics at
Augustana University College. He is the editor of a two volume collection of the
writings of Frank H. Knight recently released by the University of Chicago Press,
and of a three volume collection of interdisciplinary material on the Tulipomania
and the Mississippi and South Sea Bubbles, forthcoming with Pickering & Chatto.
Frank Hyneman Knight (1885-1972) was among the most broad-ranging
and influential economists of the twentieth century. As an economic
theorist, he laid the foundations for the modern theories of financial
markets and entrepreneurship. As a teacher, he helped establish the
Chicago school of economics: his students included Nobel Laureates
Milton Friedman, George Stigler and James Buchanan. As a classical
liberal, he argued against those who wished to use policy for the
"betterment" of society. And as a critic, he urged economists not to
forget the limits of their knowledge.
Knight was born in McLean County, Illinois on November 15, 1885.
The eldest child of a farm family, Knight's early education was
sacrificed to the demands of farm life (as was that of his brothers
Bruce and Melvin, who went on to teach economics at Dartmouth and
Berkeley). He did not leave for college until his early twenties. After
stints at several small, evangelically oriented colleges, he graduated
from the University of Tennessee, with a bachelor's degree in the
natural sciences and a master's degree in German. He received his Ph.D.
from Cornell University in 1916. Over the next fifty years, he taught
at Cornell, the University of Iowa, and the University of Chicago.
Knight arrived at Chicago during a period of transition for the
economics department. Along with the theorist Jacob Viner, he quickly
established himself as an integral part of the department's future. He
was hired to teach history of economic thought, but often taught
economic theory as well. He eventually developed a course on economics
and social policy, which he co-taught with a philosopher, Charner Perry
(on Knight's teaching and role in the department, see Patinkin1 and Reder2). He also wrote a brief introduction to economics—The Economic Organization—that
was adopted as a text in the general introductory course in the social
sciences taught to undergraduates at the University of Chicago during
the 1930s. Among the students who were introduced to economics through
this book was Paul Samuelson, who used Knight's framework for the
opening chapter of his own famous text.
Knight's contributions to the University were not confined to the classroom. In 1928, he and Viner assumed editorship of the Journal of Political Economy. During their tenure, the Journal
became one of the top journals for economists. Along with Robert
Hutchins (President of the University, and advocate of liberal
education based on reading of the "Great Books"), the economic
historian John Nef, and the sociologist Robert Redfield, Knight helped
to found the University's interdisciplinary Committee on Social
Thought. In recognition of his wider interests, Knight was eventually
made Professor of the Social Sciences and Philosophy. Although he
retired in 1952, Knight remained active both teaching and writing until
the mid-1960s. He was a frequent visitor at universities across North
America, speaking on the economics and philosophy of social policy. His
lectures on that topic at the University of Virginia in 1958 were
published as Intelligence and Democratic Action.
Knight's contributions brought him recognition throughout his career. His dissertation, the basis for his widely-read Risk, Uncertainty, and Profit,
took second prize in a 1917 essay competition sponsored by Hart,
Schaffner and Marx. In 1950, he was named President of the American
Economic Association, and, in 1957, he was awarded the Association's
Francis Walker Medal, which was given every five years "to the living
American economist who has made the greatest contribution to
economics." Knight was also a Fellow of the American Academy of Arts
and Sciences and of the Italian national honorary society Accademia
Nazionale Dei Lincei, and was selected by the United States Chamber of
Commerce for one of its Great Living American Awards in 1959. (For
general overviews of Knight's life and work see, Breit,3 Buchanan,4 Emmett,5 6 and Stigler.7) He died in Chicago on April 15, 1972.
Knight's influence on economics began with his doctoral
dissertation. Completed at Cornell under the direction of Allyn Young,
and revised following advice from J. M Clark, the thesis was published
in 1917 as Risk, Uncertainty, and Profit. In it, Knight
examined the relation between knowledge and changes in the economy. He
argued that it was important to distinguish between two very different
types of change, which he called risk and uncertainty.
Risk arose from those repeated changes for which the probabilities can
be discovered, such as car accidents or house fires. By joining
together with others and pooling their risk, people could insure
against these changes. Uncertainty, on the other hand, arose from those
unpredictable changes in the "givens" of an economy—its resources,
preferences, knowledge and so on—that could not be insured against. For
Knight, uncertainty renders impossible the perfect knowledge implicitly
assumed by neoclassical economics. However, uncertainty also creates
the possibility of profit, which is generated as entrepreneurs try to
predict the unpredictable; those who succeed make money from changing
Because uncertainty makes the prediction of human action
impossible, Knight sees entrepreneurial action as essentially "tragic."
Entrepreneurs who succeed try to replicate their success; yet because
of uncertainty, their success depends on luck, and so cannot be
replicated. Their failures lead them to substitute organization and
management for true entrepreneurial action. Since managers are not
entrepreneurs, the organizations they run are better at cost control
than profit-seeking. In the end, Knight concluded that economic change
emerges from the constant tension between new entrepreneurial action
and existing businesses hedging against uncertainty by expanding the
scope of their internal organization (Emmett8).
Risk, Uncertainty, and Profit set the tone of much of
Knight's work over the next couple of decades. Knight defended
traditional neoclassical economic theory as necessary, but not
sufficient, to understand modern economic organization. He argued that
economics' analytical power arises from its restrictive assumptions
about the world. These would have to be relaxed, over perhaps even set
aside, to fully explain the economy. Relaxing these assumptions, Knight
went on to argue, takes us far beyond the boundaries of economic
theory, and hence limits the predictive power of economics. Moreover,
the combination of unpredictable human action and uncertainty limits
the possibility for any predictive science of human conduct, making effective social control impossible.
Knight's contributions to the development of economic theory from
the 1920s to the 1940s reflect this framework. In articles like "Cost
of Production and Price Over Long and Short Periods", "Bemerkungen über
Nutzen und Kosten", "The Ricardian Theory of Production and
Distribution", the series articles on capital theory written in his
debate with the Austrians (see "The Quantity of Capital and the Rate of
Interest" for a summary statement of his view), and "Realism and
Relevance in the Theory of Demand," Knight calls attention to the
implications of the restrictive assumptions of neoclassical theory for
the possibility of understanding economic change.
Knight's emphasis on the need to appreciate both the power of
economic theory and its limitations carried over to his methodological
and ethical writings during this period. In the mid-1920s, he extended
the argument of Risk, Uncertainty, and Profit while defending
economic rationality against the Institutionalist economists, who
wanted to create a more realistic economic theory. At the same time,
he, unlike most economic theorists (including many of his own students)
explored the limitations of economic rationality as the basis for a
predictive science. "The Limitations of Scientific Method in Economics"
is the most famous of these articles, but see also "Ethics and the
The interplay of economic theory and moral philosophy articulated
in the latter essay was carried forward in "The Ethics of Competition",
in which Knight argued that market organization does not "produce"
moral people, at least by any standard account of ethical behavior.
Eventually, Knight launched a major evaluation of the relation between
ethics and economics, examining utilitarianism, liberalism and Marxism,
and Christianity ("Ethics and Economic Reform"; Knight and Merriam, The Economic Order and Religion).
His scathing attack on the possibility of Christian social ethics—"evil
rather than good seems likely to result from any appeal to Christian
religious or moral teachings in connection with the problems of social
action"—foreshadowed his argument in the 1940s and 1950s against those
who sought moral solutions to modern social problems.
By the 1930s, the importance of moral philosophy as a supplement to
economic analysis was complemented in Knight's work by a focus on the
importance of historical study. In "Statik und Dynamik", published in
English in 1935 in The Ethics of Competition, he argued that
there is an "impassable gulf" between the equilibrium states posited by
economic theory and the actual path taken by a real economy, and that
the latter require a historical examination which cannot assume
movement toward equilibrium. The focus on history grew out of his
immersion during the mid-1920s in the German historical school, which
sparked a lifelong interest in the work of Max Weber. In 1927, Knight
produced the first English translation of Weber's work: General Economic History.
Knight would have continued to translate Weber's work, if his friend
Talcott Parsons had not already arranged for the translation of several
key works, including The Protestant Ethic and the Spirit of Capitalism.
During this period, Knight also laid the foundations for his own
history of modern liberalism. Unlike his contemporaries, Knight did not
see the history of liberalism as one of gradual illumination and
progress. Rather, his account is tragic: the obstacles that our
ancestors faced—arbitrary power and absolutist claims regarding
knowledge—continue to rise up before us and threaten to return us to
tyranny unless we are constantly vigilant (see, for example, "The
Sickness of Liberal Society"). Knight argued that the most important
contemporary challenges to liberalism were "scientism" and
"moralism"—the substitution of the absolutisms of science or morality
for the open-ended discussion of democracy—not socialism.
When Knight considered the threat of socialism to liberty, he did
not focus on its economic shortcomings. In "The Place of Marginal
Economics in a Collectivist System", Knight, like his socialist
colleague at Chicago, Oskar Lange, argued that even socialist planners
would have to obey the underlying principles articulated in
neoclassical theory. Thus, what was needed was not an economic critique
of socialism, but an ethical and political one. For Knight, socialism
was just another of the diversions from the road to liberty for which
modern liberals must constantly watch. But in principle socialism posed
no greater threat to the open discussion of democratic society than
scientism and moralism ("Socialism: The Nature of the Problem" and
"Laissez-Faire: Pro and Con").
In an age which often featured new deals and great programs, and
which usually cast the social debate in terms of the ideals of free
enterprise versus those of socialism, Knight pointed to a less
ambitious, more practical social philosophy. He reminded us of the
common sense embedded in economic theory, a common sense that we ignore
at our peril. He argued that economics should lead us to question the
goals of those who would seek to "better" society by enforcing changes
through government action. For Knight, the exercise of social control
too often led to a state of affairs that was worse than the original
Yet Knight was never unqualified in his acceptance of free
enterprise. He argued that liberalism's greatest achievement—freeing
individuals from the shackles of arbitrary power—could be abused if
free individuals do not seek to become better persons. Thus, his
reading of the history of liberalism offers only a qualified sense of
hope for its future; unless we continue to strive and remain open to
discussion about what we could (and should) become, tyranny awaits.
Fortunately, for Knight and for us, the conversation remains open.
A complete bibliography of Knight's work is available9. The recent publication of Selected Essays by Frank H. Knight6
provides the first collection of Knight's essays spanning the entirety
of his career and the breadth of his interests. Earlier collections of
his work focused on economic and philosophical material from specific
decades: The Ethics of Competition and Other Essays; Freedom and Reform: Essays in Economics and Social Philosophy; and On the History and Method of Economics: Selected Essays. Knight's papers are held in the University of Chicago Archives.10
Knight, Frank H. 1921a. "Cost of Production and Price Over Long and Short Periods." Journal of Political Economy 29 (April): 304-35. Online edition: "Cost of Production and Price Over Long and Short Periods."
________. 1921b. Risk, Uncertainty, and Profit. Boston: Houghton and Mifflin. Online edition: Risk, Uncertainty, and Profit.
________. "Ethics and the Economic Interpretation." Quarterly Journal of Economics 36 (May): 454-81.
________. 1923. "The Ethics of Competition." Quarterly Journal of Economics 37 (August): 579-624.
________. 1924. "The Limitations of Scientific Method in Economics." In The Trend of Economics, edited by Rexford Tugwell, 229-67. New York: Alfred A. Knopf.
________. 1925. "Economic Psychology and the Value Problem." Quarterly Journal of Economics 39 (May): 372-409.
________. 1929. "Freedom as Fact and Criterion." International Journal of Ethics 39 (January): 129-47.
________. 1930. "Statik und Dynamik—zur Frage
der Mechanischen Analogie in den Wirtshaftswissenschaften." Zeitschrift für Nationalökonomie 2 (August): 1-26.
________. 1935a. "Bemerkungen über Nutzen und Kosten." Zeitschrift für Nationalökonomie 6 (1, 3): 28-52, 315-36. English publication in "Notes on Utility and Cost" (Chicago: University of Chicago Press, 1936).
________. 1935b. "The Ricardian Theory of Production and Distribution." Canadian Journal of Economics and Political Science 1 (February, May): 3-25, 171-96.
________. 1936a. "The Place of Marginal Economics in a Collectivist System." American Economic Review 26 (March Supplement): 255-66.
________. 1936b. "The Quantity of Capital and the Rate of Interest." Journal of Political Economy 44 (August, October): 433-63, and 612-42.
________. 1939. "Ethics and Economic Reform." Economica, n.s., 6 (February, August, November): 1-29, 296-321, and 398-422.
________. 1940. "Socialism: The Nature of the Problem." Ethics 50 (April): 253-89.
________. 1946. "The Sickness of Liberal Society." Ethics 56 (January): 79-95.
________. 1951a. The Economic Organization. New York: A.M. Kelley.
________. 1951b. "The Role of Principles in Economics and Politics." American Economic Review 41 (March): 1-29.
________. 1960. Intelligence and Democratic Action. Cambridge: Harvard University Press.
________. 1967. "Laissez-Faire: Pro and Con." Journal of Political Economy 75 (December 1967): 782-95.
Knight, Frank H., and Thornton W. Merriam 1945. The Economic Order and Religion. New York: Harper & Bros.
Secondary Sources (Footnoted in text):
3 Breit, William, and Roger L. Ransom. 1998. "Frank Knight—Philosopher of the Counter-Revolution." In The Academic Scribblers. Princeton: Princeton University Press.
4 Buchanan, James M. 1968. "Frank H. Knight." In The International Encyclopedia of the Social Sciences, vol. 3, ed. David Sills, 424-28. New York: Macmillan.
8 Emmett, Ross. B. 1999a. "The Economist and the Entrepreneur: Modernist Impulses in Frank H. Knight's Risk, Uncertainty, and Profit." History of Political Economy 31 (Spring): 29-52.
9 ________. 1999b. "Frank H. Knight (1885-1972): A Bibliography of His Writings." Research in the History of Economic Thought and Methodology, archival supplement 9: 1-100.
1999c. "Frank Hyneman Knight Papers 1910-1972: Finding Guide."
(Compiled by Glen James Gilchrist and George J. Stigler, revised by
Ross B. Emmett.) Prepared for Special Collections Department,
University of Chicago Library. Research in the History of Economic Thought and Methodology, archival supplement 9: 101-273.
6 ________. 1999d. "Introduction." In Selected Essays by Frank H. Knight, vol. I: 'What is Truth' in Economics?, vii-xxiv. Chicago: University of Chicago Press.
5 ________. 1998. "Frank H. Knight." In The Handbook of Economic Methodology, edited by John B. Davis, D. Wade Hands, and Uskali Mäki, 267-69. Cheltenham: Edward Elgar, 1998.
1 Patinkin, Don. 1981 . "Frank Knight as Teacher." In Essays On and In the Chicago Tradition, 23-51. Durham: Duke University Press.
2 Reder, Melvin. 1982. "Chicago Economics: Permanence and Change." Journal of Economic Literature 20 (March): 1-38.
7 Stigler, George J. 1987. "Frank H. Knight." In The New Palgrave: A Dictionary of Economics, ed. John Eatwell, Murray Milgate and Peter Newman, vol. 3, 55-59. New York: Stockton Press.
The New School: Knight