Profile Major Works Resources

Frank H. Knight, 1885-1972.

Portrait of F.H. Knight

The "Grand Old Man" of Chicago, Frank H. Knight was one of the century's most eclectic economists and perhaps the deepest thinker and scholar American economics has produced.  Jointly with Jacob Viner, Knight presided over the Department of Economics at the University of Chicago from the 1920s to the late 1940s,  and played a central role in setting the character of that department that was perhaps only comparable to Schumpeter's tenure over Harvard or Robbins's at the L.S.E.

Originating from rural Illinois, Frank H. Knight was educated at Milligan College and the University of Tennessee, and went on for graduate study in philosophy at Cornell University, where he switched to economics and received his Ph.D.  in 1916, under Alvin S. Johnson and Allyn Young (one of Knight's main influences, Herber J. Davenport, only arrived at Cornell that year).  After a brief period as instructor at Cornell and Chicago, Frank H. Knight joined the faculty at the University of Iowa in 1919 and became a professor at the University of  Chicago  in 1927, where he would remain until his death  in 1972

Frank H. Knights's famous dissertation Risk, Uncertainty and Profit (1921) remains one of the most interesting reads in economics even today. In it, Knight made his famous distinction between "risk" (randomness with knowable probabilities) and "uncertainty" (randomness with unkowable probabilities), set forth the role of the entrepreneur in a distinctive theory of profit and gave one of the earliest presentations of the the now-famous law of variable proportions in the theory of production.

While irreducibly Neoclassical in a general sense, Knight's peculiar economics were a direct inheritance of his Cornell professor, Herbert J. Davenport and what was then called the "American Psychological School" which sought to ground the Marginalist high theory of Jevons, Wicksteed and the Austrians in the relativist foundations of Thorstein Veblen's methodology.

Like Davenport, the notoriously belligerent Knight criticized other schools on several accounts while also adopting some of their ideas: for instance, from the Walrasians he adopted the idea of theoretical rigor and viewing the economy in terms of multiple markets, but disparaged their mathematical propensities; from the Austrians he adopted their theory of alternative cost, but attacked their theory of capital; from the Marshallians he adopted their literary tone, but attacked their lack of rigor and their "real" theory of cost; from the Ricardians, he adopted a concern with the interaction between social structure and theory but attacked the objectivist basis of their theory; from the Marxians, he adopted many of their ideas about the ethical critique of capitalism as well as its tendency towards the concentration of capital, but he abhorred the labor theory of value; from the Institutionalists, he adopted their concern with social impact on behavior and evolution, but he opposed their empirical techniques and conclusions ("history is to be sensed, not plotted", as Knight put it).  

The famously opinionated Knight used his numerous book reviews in Chicago's Journal of Political Economy as a vehicle for his thoughts on many subjects. As a result, he was embroiled in many debates with the most prominent economists of his day ranging over capital theory (versus Hayek, Mises and the Austrians, e.g. 1933, 1935, 1937),  welfare theory (versus Pigou, e.g. 1924),  Keynesian theory (1937) and positivist methodology (versus Hutchison (1940)).

Thus, Knight amalgamated much of what was contained all over the spectrum of economic theory - but without once losing the skeptic's dissecting eye. Perhaps because he was endowed with enough of the demeanour and knowledge of a philosopher, sociologist and historian as well as an economist, he was able to appear as a kindred spirit to all schools as well as an opponent at the same time.

As noted, Knight was one of the leaders of the inter-war  "Chicago School" (although we must keep in mind that during his stay there, the Chicago School had a much different tone than it acquired later).   Yet, even then, he managed to remain an outsider in his own kingdom.  Knight's well-known dislike of quantitative methods and especially empirical techniques brought him into conflict with several colleagues - notably, Henry Schultz, Paul Douglas and Oskar Lange. His opposition to the Marshallian propensities of his co-giant, Jacob Viner, earned him the latter's respect but not necessarily his  friendship. Even Knight's own unlikely protegé Henry Simons, differed substantially from Knight on most matters.

Like Schumpeter (whom he both admired and resembled in many ways), Knight was an avid proponent of a cosmopolitan laissez-faire -- but he did so on unique, "non-consequentialist" grounds. As is evident in his famous "Ethics of Competition" (1923) and in other works on ethics throughout his life, Knight does not regard the capitalist system as ethically defensible. Capitalism, he claims, does not produce what people want but merely creates the wants for what it produces - "the freest in large measure a product of the economic environment that has formed his desires and needs, given him whatever marketable productive capacities he has, and which largely controls his opportunities." (Knight, 1923). Furthermore, he argued that there was a tendency in market systems towards monopoly, that the "efficiency" of markets was misleading for there was no sense of "usefulness" of its output to society, that the marginal productivity thesis had erroneous ethical implications as "the income does not go to "factors" but to their owners...and ownership of personal or material productive capacity is based upon a complex mixture of inheritance, luck and effort, probably in that order of relative importance" (Knight, 1923).

Knight's peculiar ethical assault on the market system and "apologetic economics" did not diminish his penchant for laissez-faire as a policy conclusion. The economy, he argued, is a very complex and unstable thing. Programs of government intervention are too simplistic and do not take into account the complexities of a market economy - thus making interventionism even more dangerous. Laissez-faire is recommended, he argued, not because it "works" (for it patently does not) but rather because it holds individual freedom as a absolute good and the alternative may be much worse.  

As a result, Knight's position is quite the reverse of the  Second Chicago School economists of the 1960s, (i.e. Friedman, Stigler and company). The Second Chicago School tended to argue the positivist line that  laissez-faire is desirable because it delivers the goods, and not because it is a good in itself.  Indeed, throughout his life, Knight explicitly deplored and attacked many of the assumptions that the Second Chicago School held dear: e.g. the denial of the importance of monopolistic competition, the assumption of consumer sovereignty, stable preferences, efficient outcomes of markets, empirical-intuitive reasoning, interdisciplinary imperialism, etc.  

All these items are precisely and directly opposed to virtually every important argument and position of Knight's.   Indeed, the later Chicago School's declared "positivist" methodology was wryly characterized by Knight as "the emotional pronouncement of value judgements condemning emotion and value judgements which seems to [me] a symptom of a defective sense of humor" (Knight, 1940).  However, we must grant that Knight's theories of capital (Knight viewed all factors as capital to a greater or lesser degree) and his "public choice" view of political behavior could be said to have persisted in at least some quarters of the modern Chicago School.

In this sense, then, Knight, like Schumpeter, carved a unique path in economics -- being claimed by many schools of thought as one of their own, without really belonging to any.  Unfortunately, also like Schumpeter, although he educated and influenced many students, Knight failed to acquire any followers and failed to build up a distinctive "school of thought" around himself.   We can see some traces of his perspective in the work of Kenneth E. Boulding, Martin Bronfenbrenner, James M. Buchanan and George J. Stigler, but they can hardly be called "Knightians" in any meaningful sense. 




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Major Works of Frank H. Knight

  • "The Concept of Normal Price in Value and Distribution", 1917, QJE.
  • Risk, Uncertainty and Profit, 1921 [bk] [1933 repr] [Lib]
  • "Cost of Production and Price Over Long and Short Periods", 1921, JPE.
  • "Cassel's Theoretische Sozialökonomie", 1921, JPE.
  • "Ethics and the Economic Interpretation", 1922, QJE.
  • "The Ethics of Competition", 1923, QJE.
  • "Some Fallacies in the Interpretation of Social Cost", 1924, QJE.
  • "The Limitations of Scientific Method in Economics", 1924, in Tugwell, editor, Trend of Economics.
  • "A Note on Professor Clark's Illustration of Marginal Productivity", 1925, JPE.
  • "Economic Psychology and the Value Problem", 1925, QJE.
  • "Economics at its Best: Review of Pigou", 1926, AER.
  • "Historical and Theoretical Issues in the Problem of Modern Capitalism", 1928, Journal of Econ & Business History.
  • "A Suggestion for Simplifying the Statement of the General Theory of Price", 1928, JPE.
  • "Freedom as Fact and Criterion", 1929, Int J of Ethics
  • "Statics and Dynamics: Some queries regarding the mechanical analogy in economics", 1930, ZfN.
  • "Professor Fisher's Interest Theory: A case in point", 1931, JPE.
  • "Modern Economic Society Further Considered", 1932, JPE.
  • The Economic Organisation, 1933.
  • "Capitalistic Production, Time and the Rate of Return", 1933, in Essays in Honor of Gustav Cassel.
  • "The Nature of Economic Science in Some Recent Discussion", 1934, AER.
  • "Social Science and the Political Trend", 1934, Univ of Toronto Quarterly
  • "Common-Sense of Political Economy: Wicksteed Reprinted", 1934, JPE.
  • The Ethics of Competitition and Other Essays, 1935.
  • "The Ricardian Theory of Production and Distribution", 1935, Canadian JE.
  • "A Comment on Machlup", 1935, JPE.
  • "Professor Hayek and the Theory of Investment", 1935, EJ.
  • "The Theory of Investment Once More: Mr. Boulding and the Austrians", 1935, QJE.
  • "Some Issues in the Economics of Stationary States", 1936, AER.
  • "The Place of Marginal Economics in a Collectivist System", 1936, AER.
  • "The Quantity of Capital and the Rate of Interest", 1936, JPE. - See review by Ross Emmett
  • "Pragmatism and Social Action: Review of Dewey", 1936, Int J of Ethics
  • "Note on Dr. Lange's Interest Theory", 1937, RES.
  • "Unemployment: and Mr. Keynes's revolution in economic theory", 1937, Canadian JE.
  • "On the Theory of Capital: In reply to Mr. Kaldor", 1938, Econometrica.
  • "The Ethics of Liberalism", 1939, Economica.
  • "Socialism: The nature of the problem", 1940, Ethics
  • "`What is Truth' in Economics", 1940, JPE.
  • "The Significance and Basic Postulates of Economics: a rejoinder", 1941, JPE
  • "Religion and Ethics in Modern Civilization", 1941, J of Liberal Religion
  • "The Meaning of Democracy: its politico-economic structure and ideals", 1941, J of Negro Education
  • "Social Science", 1941, Ethics.
  • "The Business Cycle, Interest and Money: A methodological approach", 1941, REStat.
  • "Professor Mises and the Theory of Capital", 1941, Economica.
  • "The Role of the Individual in the Economic World of the Future", 1941, JPE.
  • "Science, Philosophy and Social Procedure", 1942, Ethics
  • "Fact and Value in Social Science", 1942, in Anshen, editor, Science and Man
  • "Some Notes on the Economic Interpretation of History", 1942, Studies in the History of Culture.
  • "Social Causation", 1943, American Journal of Sociology.
  • "Diminishing Returns Under Investment", 1944, JPE.
  • "Realism and Relevance in the Theory of Demand", 1944, JPE.
  • "The Rights of Man and Natural Law", 1944, Ethics
  • "Human Nature and World Democracy", 1944, American J of Sociology.
  • "Economics, Political Science and Education", 1944, AER
  • The Economic Order and Religion, with T.W. Merriam, 1945.
  • "Immutable Law in Economics: Its reality and limitations", 1946, AER.
  • "The Sickness of Liberal Society", 1946, Ethics
  • "Salvation by Science: The gospel according to Professor Lundberg", 1947, JPE.
  • Freedom and Reform: Essays in economics and social philosophy, 1947.
  • "Free Society: Its basic nature and problem", 1948, Philosophical Review.
  • "The Role of Principles in Economics and Politics", 1951, AER.
  • "Institutionalism and Empiricism in Economics", 1952, AER.
  • On the History and Methods of Economics: Selected essays, 1956.
  • Intelligence and Democratic Action, 1960.
  • "Methodology in Economics", 1961, Southern EJ
  • "Abstract Economics as Absolute Ethics", 1966, Ethics.
  • "Laissez Faire: Pro and con", 1967, JPE.




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Resources on F.H.Knight

  • Frank H. Knight website by Ross Emmett
  • Ross Emmett's "What is Truth in Capital Theory?" page on Frank Knight.
  • "Clarifying Frank Knight's discussion of the meaning of risk and uncertainty" by J. Runde, 1998, Cambridge Economics Journal
  • "Ch. 6 -Frank H. Knight: Intuition, Risk and Uncertainty" by Roger Frantz, 2005, Two Minds: Intuition and Analysis in the history of economic thought [pdf]
  • Knight bibliography by Ross Emmett at Liberty Fund
  • F.H. Knight at Liberty Fund
  • Frank Knight and the Chicago School in American Economics by Ross B. Emmett, 2009 [prev]
  • "Frank H. Knight" by Robert Formiani, at Econ Insights, FRB Dallas [online]
  • Knight page at Chicago Faculty Centennial
  • Knight entry at Britannica
  • Wikipedia


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