Frank H. Knight in Iowa City, 1919–1928: Volume 29 Part 2

Iowa City is located on banks of the Iowa River in a gently rolling region in the eastern half of Iowa, about 250 miles west of Chicago. It was the state capital until 1858, when the government was moved to a more central location in Des Moines. In 1919, the year the Frank H. Knight family moved to Iowa City, it was a small university community of about 15,000. No doubt Knight and his wife Minerva found it a pleasant enough place to live and raise their young family. To Frank, the town and surrounding area must have seemed much like that of Bloomington, IL, near where he was born and raised. For the first few years in Iowa City the Knight family lived in an 1890s vintage house close to the campus, and just around the corner from a public elementary school.³

The following interview took place in Urbana, Illinois on October 27, 1978 and was recorded on an audiotape.

Modern economics centers in utility theory, which can only be understood by viewing it in relation to ethical as well as to economic thought. Economics stands in a peculiar sense at the meeting point of the two great urges of the mind, the theoretical and the practical interest, the desire to understand the world and the desire to change and use it. In one direction its problems look toward explanation, in the sense of the discovery of laws comparable to those of the physical sciences, while in the other direction they look toward the study of values, criticism of processes and results, and the formulation of objectives and policies.

The relations between economics and business are naturally more or less bound up with the relations between economists and businessmen. In fact, the hope of improvement in these personal relations is the chief justification for discussing economics and business. For it is well at the outset frankly to face the fact that the attitude of businessmen and economists toward each other, while it is improving rapidly, has not in the past been exactly ideal.

This is not the place to enter into a general discussion of the policy of protectionism. It is well known that reputable economists practically without exception have always condemned it as an economic measure and that one of the stock sections in every elementary textbook on economics is devoted to refuting its fallacies. Whatever merit may once have been more or less reasonably ascribed to it as a method of stimulating the industrialization of a young nation passed into history in the United States when we became self-sufficient in manufacturing and began to export industrial products. From the farmer's point of view the tariff has been a costly national luxury for which he chiefly has had to foot the bill and the only compensation he as ever received was the privilege of paying more for his goods because they were marked “Made in the U.S.A.” – unless we credit the transaction with a certain amount of satisfaction derived from fattening our industrial trusts.

The familiarity with which the term “scientific” is bandied about these days would almost suggest that it denotes something sacred! The danger of familiarity and sanctity is that we may be lulled or frightened into using the word unthinkingly, and it is very necessary to be especially critical as to the meaning of just such terms. The purpose of these paragraphs is to urge a more wary attitude that it sometimes displayed toward the notion of “scientific management” in business, and to sound a warning against a serious error in the conception of business education.

In a field stirred by controversy one who attempts to take a “scientific” attitude characteristically finds himself between two fires: the dispassionate seeker after truth is despised and abused by both sides. For in a controversy both sides cannot be right and in general both sides are wrong. So it has been with economists. The matter with which they deal is the subject of political controversy; the conservative views with alarm many scientific commonplaces of economics as dangerous radicalism, while the labor leader and social reform propagandist be-rates them as the corrupt expression of a scion and dependent of the privileged classes; and both sides scorn them as theoretical and academic.

There is no occasion in a paper such as this to go deeply into the history and causes of the agricultural depression. The essential facts are well known and generally admitted, and are proven by statistics accessible to everyone. Taking as the basis of comparison, not the abnormal years of 1917–1919 when agricultural in America benefited relatively to the average of other industries (though not as much as some others) from the special conditions of the war, but taking the conditions of 1913, it is known and admitted that since the “break” of 1920, the condition has been reversed, and to a serious degree. Agricultural prices have ruled distinctly below those of other products, and much of the time very much lower. The real wages of workers in manufacturing industry have been well above those of pre-war years, and the labor incomes of farmers far below – when they had any labor income at all. “Industry” (in the narrow sense) has been vauntingly prosperous, while the figures for bankruptcies and for the movement of population from country to city testify to the opposite condition in agriculture.

A survey of organization in all its manifestations, in the biological organism, in animal societies (so-called), in past and present human political society and in the various groupings of human beings inside of “society” for the infinite variety of purposes for which men form associations and act together – such a survey suggests that the forms of organization may be grouped under a few main types. The first is a rigid mechanical inter-connection, as in the case of the animal body. The material system of nerves and their end-organs is familiar to all students of physiology. Recent study has shown that there is another mechanism, probably prior to the nervous system and possibly even more important in many ways, for co-ordinating the activities of the parts of the animal body. That is the circulatory system with the chemical reagents secreted in small amounts by each part and carried to other parts to produce changes in them – “hormone” action. But we are not concerned with these devices further than to notice that both are purely mechanical, and that they are neither available nor desirable as means for the organization of society, and may accordingly be dismissed. We should observe, however, that the mechanical problems of intercommunication and inter-transportation are present in human society and the manner and degree of their solution strictly limit and condition the workings of any form of organization. The difference is that in human society co-operation is and must be a conscious, intelligent response on the part of the “member,” not an automatic reaction. (The amount of physical coercion not involving “choice” of some sort by the individual is quite negligible, even the so-called use of “force” is really a manipulation of alternatives of choice.)

And let the quantities of the different factors owned by the different individuals be represented by the symbol Qik. That is, the quantity of the first factor owned by the first individual will be Qi1k1, for the first factor owned by the second individual, Q i2k1, for the second factor and the first individual Q i1k2, and so on to QiN for the nth factor and the Nth individual.⁷

In the view of a more or less characteristic attitude toward “arm-chair stuff,” it is fair to say that this paper is frankly of that variety, it does not present the results, tabulated or otherwise, of any inductive investigation, under controlled conditions and no apology will be made to anybody on that score. Nor will much time be taken in arguing the worth-whileness of abstract thinking on the question of methods, or in settling the place of deduction in relation to induction. One way to study the problem of methods would be to try all possible methods on all possible problems and see which gave useful or satisfying results. In the same way, one way to study any science would be to try all possible experiments and see which ones succeed. (mushrooms and toadstools). I shall simply assume without much discussion that while the only way to settle any question in case of persistent uncertainty of disagreement is to try it, on the other hand two things are true; in the first place much labor can be saved by getting as clear an understanding of any problem as possible in advance of inductive study that blind trial and error methods are wasteful; and moreover, inductive investigation itself rarely proves anything unless it is intelligently planned and carried out with a view to proving or disproving some hypothesis which has seemed in the light of careful previous analysis to be worth testing. And of course I assume that these principles hold in relation to the study of methods as well as in other lines of inquiry. It is true that much a priori discussion is inconclusive, misdirected, and futile; it is often true that it is needlessly prolonged, carried beyond the point necessary to define the issues and serve as a guide in an investigation of facts. It is even true, though very exceptionally, that in some cases it is entirely helpless and the only thing to do is to begin experimentation blindly or wait for some accidental coincidence to suggest a solution of a problem. For example, the discovery of effective catalyzers in chemistry, or perhaps the stains to differentiate a suspected bacterium or the treatment for a new disease. But is also true that an enormous proportion of inductive scientific study is misdirected and futile because the problem was not adequately analyzed to begin with. In the field of social science, with which I am fairly familiar it is triturating the obvious to say that the greater part of the statistical studies either prove only what everybody already knew and which called for no proof or else seem to prove something that everyone knows is false. And when the result of statistics conflicts with the convictions of common sense, which is really well-informed judgment, it is a trite observation that it is usually the statistics which are wrong (Pearson). The man in the street has only too much justification for the common belief that anything can be proved by statistics, and for the well-known division of liars into the three grades: plain liars, damned liars, and statisticians.

We stated at the outset that it is easier to indicate what spirituality is not than to find any satisfactory way of putting into language what it is, but we must now turn to the more difficult part of the task. Under this head we can give only passing notice to the metaphysical problem of what one must believe about the character of the universe in order to find a place in it for a spiritual interpretation of life. It is necessary to believe at least that man is more than a part of the universe as interpreted by science. Personally, I think it can be shown that it is shown by a really critical development of science itself, that we are justified in believing in a spiritual reality underlying natural processes, even outside of our own consciousness. Cause and effect do not tell us all there is to say about natural changes. Science itself, when it is ruthlessly critical of itself and fully candid, does not pretend to tell what is going on in ultimate reality, “behind the scenes” of visible change. It is only a formula for enabling us to predict what will happen under given conditions, met with in nature or produced in laboratory or factory in order to some purpose of our own. Whether there are “really” existing, corpuscles, gravitation, electricity, and the like in physics and chemistry and determiners or “genes” in biology, or if they are what they are like, is a question which the truly critical and honest scientist admits to be quite beyond his province. But the masterly address of Mr. Bridges at an earlier point in this program makes it doubly superfluous for me to go into such questions. For that matter, my task is limited to the definition of terms and the pointing out of problems and dangers.

Contrasting with the equally invincible logic of Spencer and Carver, proving that value is a matter of intelligently directed activity – intelligently in a social sense.

Love and force are thought of as the ultimate antithesis in human relations; the substitution of love for force is the utopian dream, the consummation devoutly to be wished but hardly hoped for, the far-off divine event to which the whole creation moves – perhaps – slowly if at all. It may therefore seem perverse to raise a question as to whether there is any fundamental or real difference between love and force. Yet consideration of that question will show that from a scientific, logical point of view, love is equivalent to force in human relations, and is in fact but a variety of force. It will show too, that force in the world in general, to be given any meaning at all, has to be regarded as a kind of love, as Empedocles contended long ago. This is no mere speculation or word-play; the point is of the most fundamental and practical significance in the field of social science, regarded as a project for improving the quality of social life.

On August 23, 1927, the great and heroic state of Massachusetts killed a fish peddler and a cobbler.¹ It had been intending and most intently wishing to kill them quick, but it took 7 years to set its courage to the sticking point. After all the profound and earnest observation and animadversions and protestations so copiously poured out upon it, this episode still awaits the Andersonian terrible infant (or the “little child” of a still older fable) who will make the obvious remark that the emperor is naked, and liquidate the whole affair. Nor is this as much, hardly, a figure of speech as it is literal truth. The “emperor” thus undressed and paraded before the public in what artists call the nude is in fact the political state. The death of a fish peddler and a cobbler has done what a thousand life times of the most intelligent argument could not have done, it has “demonstrated” objectively, the rigorous, scientific truth of the conception which the two men held of the nature of the state, the anarchistic conception. I say rigorous, scientific truth, for it is not yet the pragmatic truth, the time has not yet come to act upon its truth, or even admittedly to recognize it openly and publicly. But it might be recognized on those rare occasions when intelligent persons are speaking in detachment and presumably trying to tell the mere truth.

It is possible to raise a question as to the appropriateness of Carlyle's famous designation of political economy as “the dismal science” without in the least implying that political economy is not dismal. The quarrel may well be rather with the use of the definite article and not the adjective dismal. In a very fundamental sense all science is dismal, and one is not justified in thus specifically picking on political economy; the only question would be which science is the most dismal, and this question might start a considerable argument. The connection between wisdom and sadness is more or less proverbial; who cares to look through a microscope at his cheese and beer, or the complexion of his dear. ‘Tis distance lends enchantment to the view; and love is blind; he that increaseth knowledge increaseth sorrow.¹ The poet and the preacher have always seen that science is dismal, that joy is based on illusion and knowledge means disenchantment, and have been wise in fighting the advancement of science, which they have done ever since an early member of their tribe blamed human curiosity with the fall from bliss and the first introduction of evil into the world. “Knowledge of good and evil! Knowledge of good lost and evil got!” as Milton makes Adam say. It will be worthwhile looking a little at this general proposition of the dismalness of science before inquiring into the narrower question of the dismalness of political economy in comparison to other claimants for the use of the superlative. It happens to be the writer's daily toil to look at this science through the microscope as it were, and yet in spite of this special advantage for seeing its dreary aspects and the beauties of its competitors, it is not clear at once that the palm should be awarded precipitately to political economy. We should insist on something much larger than a fig-leaf at least for physiology, and are reminded that Nietzsche thought physics “intolerable.”²

Economic discussion, as well as other discussions of problems of conduct, and that which aims to be scientific as well as that of a popular character, is permeated with the distinction between economic and non-economic values, and also with the contrasted notions of ends and means or value as such and “power” for realizing value. Both these contrasts, and all their four terms, are, however, exasperatingly vague in meaning. In a former paper¹ I have attempted to simplify and untangle the confusion by showing that both contrasts are merely different ways of viewing the single fact of choice. By way of introduction to the subject of the paper, it is necessary to recapitulate this argument briefly. The notion of means or of the expenditure of “energy” in realizing value is an aspect of the recognition that values are alternative to each other, that to secure one we give up others which might have been had instead. Where this is not the case, if that ever happens, there is a very different sort of problem of conduct involved, if any, and the notion of value itself applies in a very different sense if at all.

Note. These two presuppositions carry the discussion beyond the level of pure science, but do not introduce ethics. The fact that choice is real is different from the question whether one choice is “better” than another. This is the essence of individualism, that values are real, but that one is exactly as good as another, except as it is quantitatively bigger to a person whose values both of them are which are being compared.

Discussion of Liberalism and Religion falls into two parts. Tempted to call it the failure, even “bankruptcy” of liberalism. Contrast between liberal and illiberal religion getting too much attention in comparison with that between liberal religion and liberal irreligion.

The Problem, to “save religion from science”; to find whether, in spite of the argument of the first discussion,¹ which showed the contradiction between the scientific and religious world-views and the impossibility of any crude or simple theism — to find whether it is still possible to have any religion without stifling one's intellect.

The meaning of “society,” getting into society, the society page in the Sunday paper, pink teas, dog shows, etc. The notion of manners, etiquette, good form, what is done and what is not done a fundamental aspect of society. A few quirks from D.O. Stewart's Perfect Behavior. Proper behavior for a young man run over by an automobile driven by a strange young lady, etc. The notion of etiquette a serious matter and of far wider import than is generally realized. Fundamental to the notion of society and its scientific study.

Students of the social sciences do not need to be reminded that one of the leading modern schools of ethics has been made up chiefly of economists. I refer of course to the utilitarian school. Utilitarianism, or economic ethics, is the type of ethical theory which has been predominant in the past century and a half – the “modern era” if we date from the great overturn in social theory brought in by the Enlightenment and the American and French Revolutions. If its predominance in literary and academic discussion may possibly be questioned, its predominance in the thought and actions of statesmen, law-givers, publicists, and reformers certainly cannot be. A brief consideration of the utilitarian ethics will form the starting point for my argument.

Ref. to Parson's sermon on Bryan was right.

Newton's cosmology, with mass, space, and time as independent absolutes. Not fundamentally changed by Einstein-Whitehead. Contrast Ostwald, Planck, Bohr, and energetics.???

One who pursues the study of economic theory with any pretense of doing more than scratch the surface is quickly compelled to consider the relations between economic behavior and value judgments in the “higher” fields of esthetics, ethics and religion. Directly and concretely, he is forced into this consideration of the problem of behavior in its broader aspects by two courses or paths, two specific problems. The first is his dealing with the history of doctrine, and the second is utility theory, or any attempt to formulate a theory of consumption in whatever terms. We glance at the two, in this order.

Man is by nature a social animal, said Aristotle – the Greek word political really having rather this meaning in English. But the American sociologist Lester Ward, reverses the dictum – echoing Hobbes – and says that man is not by nature a social animal but associates only for the mechanical advantage of co-operation. It is patent that men do associate for both reasons, because they like society and because of the greater efficacy of group activity, especially when division of labor comes to be worked out. The point to be noted is that the two motives may either coincide and supplement each other, or conflict. Hobbes and Ward imply that man is in general really antisocial, that the gain from organization of effort has to overcome an essential antipathy to association as such, but clearly this is not necessarily the case.

Early civilized man advanced much farther in securing power by the second method. Primitive society more effectively unified than modern – by custom; early civilization by despotism, slavery.

Mr. Meredith's proposal¹ must arouse a sympathetic response in the minds of the thoughtful reader. His arguments are sound – I should make reservations as to his tacit acceptance of protectionism as the basis of our international trade policy, but perhaps that is done out of deference of political actualities – and it seems probable that the course of action suggested would, if it were effectively carried out, result in great benefit to the country as a whole as well as to the farming class. However, it is necessary to point out some fundamental objections to it, which in the aggregate dispose the writer to react negatively to it as a proposition of practical politics.

Two things strike the economist as peculiar about his science, and their strangeness grows with reflection upon them. The first is the readiness of people without scientific training to pass authoritative judgments upon the most difficult and intricate problem and the attention which is paid to them by the public, and the other is that the fallacious propositions which they put forth are such as it appears should really be avoided by the exercise of ordinary common sense without special training. In other fields, such as law, medicine, or engineering, the man in the street does not attempt to settle the problems by inspiration, or hunch, but calls upon the expert. And if he does express opinions, no one else will take him seriously. In economics, it is different. Anyone feels quite free and confident in settling nearly any question in an off-hand manner, and more remarkable still, if he has a glib tongue, or pen, what he says is likely to receive notice and credence fully equal to the pronouncement of a specialist who has studied the problems through a long life. Especially is this true if the person giving the obiter dictum has achieved a reputation in some other field of endeavor. The public does not think that because a man has achieved renown as a lawyer he is thereby qualified to diagnose internal cancer or remove an appendix, nor does the successful attorney himself get this idea. But let a great inventor, automobile manufacture, physician, or anything else, air his views upon the economic ills of the country and he immediately gets the front page of the newspapers, where a specialist in economics might be unable to get a hearing at all. During the war they were even denied space in the newspapers for which they offered to pay at advertising rates because their views ran counter to popular prejudices.

In the title of this brief address, the emphasis is to be placed on the word “and.” My point is that to speak of efficiency as the ideal would be nonsense, a contradiction in terms. An ideal is one thing, and efficiency in realizing or promoting it is another and very different matter. One can be efficient in working for a bad end just as well as in working for a good one. Neglect of this very elementary truth produces so much confusion of thought in the discussion of social problems that it is justifiable to elaborate and emphasize it.

Dr. Mr. Editor:

On interest in and need for religion. Notion that it is a form of defeatism, escape from reality, etc. Especially on the attitude of youth toward religion. Youth often mystical, sentimental, romantic, full of uncritical enthusiasm, yet, especially in the modern age, tending to be “irreligious.” Their enthusiasm and buoyant optimism tends to center in themselves rather than in outer “powers” of any sort. It is common (and perhaps healthy?) for youth to believe that “the world is my oyster,” and I will find the way to open it. Tendency toward a different view with advancing years, as one finds out how feeble ones powers really are, and how resistant the material with [which] one has to work in realizing ones big ideas and ideals. Story of President Harper, who said his fortieth birthday was the most melancholy day of his life, the day when he first finally admitted to himself that his life was a failure, that all he would ever get done was quite trivial and irrelevant in comparison with his hopes and plans.

It is more and more clear to me that the final question in regard to values, which is to say the final question in one's interpretation of life and the universe, is this which I have tried to focus in the epigrammatic phrase “such that.” Is the inner nature of things – especially of people – “given” in such a sense that all their doings and manifestations are but the “expression” or “manifestation” of a given inner nature, that what they do in the broadest sense follows inevitably from [w]hat they are at the moment of the doing? Or on the other hand is there “more” to than that? Is there a margin of choosing to be one thing or another, or choosing to do in a sense which involves choosing to be, as well as expression or manifestation of what one already is? It is the essential message or point of Bergson's philosophy. Cf. also B. Russell, Analysis of Mind, and Seman's work to which he refers. Russell inclines to the view that what a person or animal does expresses what he is, exactly and completely, but admits it is an assumption, unprovable. He is no fool. He also admits that what one is at any moment depends within widest limits on his history, but assumes also that this unfolds according to law, that the changes which one's nature undergoes in any experience or act are also an expression of and theoretically predictable from what one's nature was the moment before and the conditions surrounding the experience or act. But he recognizes that this also is an unprovable assumption.

* * * * * * * *

The big idea is that of “noneconomistic” value, but it keeps taking new forms, showing in new lights. Values beyond technique, or the whole category of “prediction and control.” In social relations, we have two mechanical systems of interrelationship among humans, which we call legal and economic. Both are economic in the broad sense, “economistic.” Both are forms of co-operation. Both are fatal to sociability, companionableness.

It's not obvious just what is the relation between this analysis and previous “List of Fundamental Wishes.”

N.B. The more I reflect about economic ethics and social criticism, the clearer it is that socialism, equalitarianism, and radicalism egregiously neglect this aspect of the “competitive system.” Two questions: how far the things is a game, as against a means of providing real goods, and what kind of a game, how good, and how to make it better. It is undoubtedly true to some extent that people need to be taught to be and to be “better sports” when they come out at the little end of inequality.

Next step, the examination of meaning, especially the relation between meaning and fact. Is a meaning a fact? In what sense is it? Note that every “object” is largely a meaning, a construct, not a primary, elementary fact. But the meaning element, in contrast with the elementary-factual part (sensation?) is enormously greater relatively in human beings and their acts and products of their activities (objects of “use” or of “art”) than in natural objects. This seems to me, at the moment, to be an “important” lead. (Communication.)

Suggested by discussion of “consumers’ surplus” in economics class. Which seemed to be a good notion for focusing the problem of the relation between means and end, or reason and value.

It seems necessary to be back to fundamentals! (As it always has a way of seeming necessary to get back, farther and farther, into emptiness, when one thinks hard enough.) But first, one observation by way of orientation, or a concrete orientation to extant discussion:

CWH¹ criticized various sociologists' conceptions of personality and defined it s “the sum and organization of the factors which condition the relations of individual to group.” Divided the traits of personality into two groups, those of the “individual” (animal, physical traits) and those of the “persons,” the products of culture, social influence, etc.

Utilitarianism assumed that what is good is a matter of personal preference (No. 2 in the list) but that the distribution of the good, or the means to the good (the writers thought it always a matter of means) was subject to obligation. (They had no use for esthetics, or beauty except as measured by actual desire or pleasure – they confused desire and pleasure again.) I'm not sure about Bentham (ought to read him!), having impression he thought of society as a system of “sanctions” mechanically harmonizing interests, rather than of obligations. But Albee says he recognized obligation.

For Economics 271 and/or 272 (1921–1922)

It is interesting to observe in view of the significance of trade as the great urge toward progress, that mankind has in the past generally viewed it as rather immoral, and we have not yet recovered from this attitude – as the slogan “swat the middleman” attests.

The subject for study at present is the manner in which the prices of consumption goods and services are fixed under competition. The theory of price under monopoly is treated as a separate topic (Ely, Chapter XIII); and the theory of the prices of productive goods, that is, the theory of wages, rent, and interest, which are the prices of labor and the use of land and capital, are also treated separately under the head of Distribution. (See Ely, pp. 177–178, and Chapters XX–XXVII.)

Ostensibly the Carverian argument is based on the following premise, which is treated as an axiom:Human beings like other living creatures seem to be driven by a force that they neither understand nor care to resist, to keep on living, to consume food and transform it into human energy, and to increase their numbers, thus, in every way, enlarging the stream of human energy. In short, they act unconsciously, driven by their own nature, precisely as they would act consciously if they were convinced by unanswerable logic that the most valuable thing in the world was human energy or human life, and the most profitable thing in the world was to transform the largest possible sum of solar energy into human energy. (p. 12)

Review of Campbell, C. G. (1925), Common Wealth: A Study in Social Philosophy, The Century Fund, New York.

Review essay on Birck, L. V. (1922), The Theory of Marginal Value, George Routledge & Sons, London; E. P. Dutton, New York; and Henderson, Hubert D. (1922), Supply and Demand, Harcourt, Brace, New York.