Research in the History of Economic Thought and Methodology: Including a Symposium on Frank Knight's Risk, Uncertainty and Profit at 100: Volume 39C

Knight’s Risk, Uncertainty, and Profit is, by the author’s own account, “a study in ‘pure theory’.” From pure theory, the scientific method’s “successive approximations” explain empirical phenomena. But Knight did not fully develop the boundary conditions for theory. In this chapter, the author elucidates the demarcation of pure theory in Risk, Uncertainty and Profit. For comparison and contrast, the author uses Mises’s Austrian aprioristic methodology praxeology and its strict distinction between theory and thymology. The author finds that Knight and Mises largely agree on the nature and importance of pure theory but differ on its meaning and use. The author’s findings suggest that Knight, while arguing for aprioristic pure theory, still places empirical observation first.

Our chapter discusses the myriad ways in which Frank H. Knight’s Risk, Uncertainty, and Profit (RUP) has been incorporated by different streams of scholarship dedicated to institutional analysis since 1990, when bibliometric evidence indicates a revival of interest in his classic work. Using citation analysis, the authors identify clusters of scholarship that build on Knight’s contributions, assessing which of his insights were absorbed by different subfields and how these have been connected to recent topics and concerns. The authors then qualitatively explore these results to throw new light on the recent history of institutional economics, using Knight’s RUP as a window into the evolution of (and inter-relations between) different research traditions that currently populate the field, including new economic sociology, comparative politics, evolutionary economics, entrepreneurial studies, environmental social sciences, international political economy, and the anthropology of finance. The authors conclude that Knight’s legacy remains unsettled, with different groups selectively absorbing a subset of his ideas and developing them in relative isolation from research conducted elsewhere. Nevertheless, boundary work connecting these separate areas reveals possible spaces for collaboration among scholars who study institutions building explicitly on Knightian insights.

I have been asked to explore how James Buchanan’s work on public finance and constitutional political economy might have emerged out of themes present in Frank Knight’s oeuvre, especially his Risk Uncertainty, and Profit. Buchanan’s body of work has inspired the development of a style of political economy sometimes described as Virginia or Constitutional Political Economy to distinguish it from the Chicago Political Economy with which George Stigler is associated, and with Stigler and Buchanan both being students of Knight. While Buchanan, unlike Stigler, did not write his dissertation under Knight’s supervision, this is a minor distinction because Buchanan regarded Knight as his de facto supervisor even though Roy Blough was his de jure supervisor. The author explains how Knight’s scholarly oeuvre can in large measure be detected in Buchanan’s effort to fashion an alternative approach to public finance and to articulate the field of study now called constitutional political economy.

In 1933, Lionel Robbins asked Frank Knight if he could republish Knight’s Risk, Uncertainty and Profit (RUP) in order for students at the London School of Economics to continue to have access to the book. He also asked Knight to write a preface to provide an update on Knight’s changing economic views. Between 1933 and 1957, Knight wrote four new prefaces for reprint editions of RUP outlining changes in his views. In the prefaces, he identified four aspects of the theory expounded in RUP that he came to reject: (a) the method of successive approximation; (b) the separation of production from distribution; (c) the tri-partite division of the factors of production; and (d) any notion of a period of production. These rejections placed him squarely in opposition to F. A. Hayek’s theoretical work. He also identified the key features he had sought to develop in a monetary theory that would oppose J. M. Keynes and John Hicks. At the same time, he sought to identify the new theoretical ideas he was developing, including an enterprise-based theory of market exchange, and the adoption of a unitary resource, called capital. He also pointed to the work in social philosophy that he had begun in the 1940s, especially the need for a combined approach to social science using economic theory, ethics and social philosophy. The prefaces came to serve as a bridge between Knight’s original theory and what he would argue at the conclusion of his career.

Rawls, most visibly in A Theory of Justice, made numerous references to various topics in economics, and footnoted a significant number of economists. This paper will argue that Rawls made use of the ideal theory of markets as a reference point and as an analytical tool. In their ideal form, markets represent attributes Rawls intended to describe his system, and in their real-world guise embody certain sorts of striving – for instance, after power – that were central to Rawls’s justification of the original position. Markets also serve in Theory as a benchmark against which political forms can be criticized. Additionally, markets in Theory are approved of as allocative and wealth-producing mechanisms, but criticized for their final distributional results. The paper suggests that these assessments in Rawls likely originate in early essays by economist Frank Knight. Knight was, according to Pogge, the probable source for an early version of Rawls’s original position, and is footnoted in key spots in Theory. But the similarities between Knight’s reasoning and Rawls’s appear more significant still. Using Rawls’s extensively annotated copy of Knight’s Ethics of Competition, that supposition is explored.

Walter Lippmann is widely acknowledged as the Father of modern American Journalism and one of the most profound public thinkers of the twentieth century. Though he extensively corresponded with economists, political philosophers, political scientists, and statesmen on both sides of the Atlantic, Lippmann’s interest in political economy has only come under serious academic investigation within the last 20 years. When Lippmann has been explored in the history of economic thought, he has generally been considered to be a propagator and popularizer of others’ ideas rather than a serious theorist in his own right, particularly his role in spreading Keynesianism as one of the early supporters of the New Deal. This chapter directly challenges this dominant interpretation on two fronts. First, it acknowledges and explores Lippmann’s role as a contributor to the economic discourse of his time. Second, it challenges categorizing Lippmann as a Keynesian by highlighting the closeness of many of his ideas to the Austrian school of thought. It accomplishes this by giving a holistic view of Lippmann’s thought, not only in the Great Depression and New Deal Era, but how he evolved from a student sympathetic to socialism at Harvard in 1910 to a theorist concerned with epistemological problems of good political, social, and economic order. The development of Lippmann’s thought in this broader lens parallels much of the work of Hayek, Mises, and others during this period, and presents rich new research opportunities for both modern Austrian economists as well as historians of economic thought.

William Amasa Scott was in his time well-known as a monetary economist as well as a popularizer of economic ideas, whose opinions were widely regarded by the public. A proponent of Austrian economics and defender of classical economic theory, he soon found a home at the School of Economics, Political Science and History (later the School of Economics) at the University of Wisconsin which, while initially a mainstream department, would evolve into the citadel of Institutional Economics. Notwithstanding his status as an authority on monetary economics and his place as a public intellectual, he remained at the University something of an outsider throughout his career and today is largely forgotten.