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									       Frank H’ Knight: Archetypical
         Conservative Economist
                                William S Kern

AMONG                            f
         ECONOMISTS, the name o Frank            As a teacher, Knight served short stints
Hyneman Knight is synonymous with con-                                             f
                                             at Cornell and at the University o Iowa
servatism, a result which stems prima-                                      f
                                             before joining the faculty o the depart-
rily from his status as the intellectual     ment o economics of the University o
                                                     f                                   f
founder o the “Chicago School” ap-           Chicago in 1928. Knight remained at the
proach to thestudy of economics and his      University of Chicago for the duration of
defense of free markets. The influence of    his career. He died in 1972 at the age of
Knight’s ideas upon his students, such as    87. In addition to Risk, Uncertainty, and
George Stigler and James Buchanan, and       Profit he authored The Economic Oqani-
his close associations with other well-      zation (1 933),Intelligenceand Democratic
known conservative economists, such          Action (1960), The Economic Order and
as Henry Simons,Aaron Director, Milton       Religion (1945), On the HistoryandMethod
Friedman, and Freidrich Hayek, are evi-      ofEconomics(l956),TheEthicsofCompe-
dence of Knight’s conservative creden-       tition (1935), and Freedom and Reform
tials. Thus it is no exaggeration to say     (1947). The latter three are composed o     f
that through his influence on economists,    collections of his essays on a wide range
FrankKnight was oneof the most influen-      of interests such as economic theoryand
tial conservatives of twentieth century      history, ethics, political science, religion,
America.                                     scientific methodology, and cultural an-
    Knight was born in 1885 in southern      thropology.
Illinois, where, he later recalled, “as a        Much of Knight’s work reflects a criti-
toddler, I toddled under a Republican        cal attitude designed to elicit more ques-
table, on a farm in the Middle West.”’ He                           f
                                             tions in the mind o the reader rather
studied for the ministry at Milligan Col-    than to provide definitive answers. In-
lege in Tennessee but left to study at the   deed he was once described by a former
University of Tennessee, where he gradu-     student as “the eternal asker o ques-f
ated with a B.A. and M.A. in 1913. He        tions.”2Thiswasverymuch in agreement
earned his doctorate in economics at         with his self-chosen function as that o a f
Cornell University in 1916. His doctoral     social critic. In Intelligence and Demo-
dissertation, entitled Risk, Uncertainty,    cratic Action he reflected upon and de-
and Profit, was published in 1921 and                                      f
                                             fended his long tradition o criticism:
rapidly established his reputation as an
                                                It has been said that fools ask questions
economic theorist. This work remains            and wise men answer them. If I’m a ques-
today a true “classic”in economic theory.

258                                                                           Spring 1993
   tion asker rather than an answerer, my             cal of laissez-faire as he wrote in support
   defense is to suggest that the first task o    f   of it. In essays such as “The Ethics of
   intelligence,and the hardest, is to ask the        Competition” and “Abstract Economics
   right questions. . . . To that indictment I        as Absolute Ethics,” Knight subjected
   must plead guilty,and also to that o being
                                                      the advocacy o laissez-faire to some of
   better at criticizingother people’s asking
   and answeringthan at doing either myself,          its sternest criticism. And yet as Scott
   and more addicted to the former role. But          Gordon has noted:
   I have a defense. . . . I think the role fits in     We may term him a “liberal”[in the nine-
   with the concept of democracy, that the              teenthcentury meaning of that term] be-
   function o the intellectual leader, in the
               f                                        cause he did so describe himself, but his
   difficult field of social philosophy and             own discussion of liberalism was more
   policy, is to clarify issues, at most suggest        concerned with its weaknesses than its
   possible solution and perhaps arguments              strengths. N o one, indeed, has searched
   pro and                                              out its subterranean defects with more
   In economics, Knight’s penchant for
criticism led him to reject the profession’s          Knight was, however, able to reconcile
propensity to endow economic analysis                                 f
                                                      his advocacy o the free market with his
with the trappings of sophisticated math-                             f
                                                      critical views o it on the basis that the
ematical rigor and resort to statistical              free market system with all of its faults
manipulation. Knight rejected these de-               was better than any of the possible alter-
velopments on the basis that “the most                natives. Thus his criticism was offered in
important obligation o the teacher of                 the hope “that a clear view of its short-
economics who seriously tries to be use-              comings in comparison with conceivable
ful. . .is to get the public, the electorate,         ideals must be of the highest value in
to pay attention to and apply self-evident            making it better than it is.”6
truths or virtual truisms.” Some o the f                                      f
                                                         Knight’s advocacy o free markets was
simplest propositions in economics-                                       f
                                                      in part a product o his views on cultural
that free exchange benefits both parties;             anthropology and human social evolu-
that protectionism lowers standards of                tion. Knight informs us that the first step
living; and that the creation of inflation            toward sound and useful discussion of
does not create wealth-are nonethe-                   man and society must begin with the
less someof themost commonly ignored.                 recognition of the fundamental element
Knight never tired, it seems, of quotinga             of ‘‘plurali~m.”~ Pluralism describes the
Josh Billings saying that he termed “his              fact that man is simultaneously a mem-
favorite principle of education”-“that it                                           f
                                                      ber of kinds of being, some o which are
isn’t ignorance that causes the most                  mutually incompatible. Man is a
harm, but knowing so darned much that                 psychochemical organism, a biological
‘ain’t’~ 0 . ” ~ the most important role
              Thus                                    organism, and at the same time an acting,
o an educator was that of inculcatingthe
 f                                                    thinking beingwho possesses conscious-
abilityto thinkcritically, and to “unteach”           ness. Man is a law-maker, a law-breaker,
so much of what people “know to be                    agame-player and arational utility-maxi-
true” by exposing nonsensical arguments               mizer, all at the same time. Secondly,
used to defend fallacious propositions.               human society exhibits the property of
   In spite of Knight’s penchant for criti-           pluralism with regard t o the variety of
cism, he is nonetheless best known as an              mechanisms that serve to create human
advocate of laissez-faire and defender of             social order. All human social orders
free market institutions, despite the fact                                          f
                                                      rely upon the institutions o authority
that Knight wrote as much that was criti-             and leadership, custom and condition-

Modem Age                                                                                    259
ing. In addition there is always some                            f
                                                     privacy o freedom as a social and indi-
form of formal deliberation or discus-               vidual value. First, it is instrumentally
sion leading to agreement or to a conclu-            desirable as a means to the realization o  f
sion favoring change in the social rules.            other means or values rightfully pursued.
    In primitive and preliberal cultures,            Secondly, freedom is a value in and o      f
human social order is based primarily                itself. It is something that men ought to
upon the methods o customand author-                 want even if they don’t because it is part
ity, while the method of formal discus-              of the modern ideal of the dignity of the
sion (“intelligence” as Knight referred to           person. Finally, there is the pragmatic
it) isvirtually inoperative though present.          reason. The police function involves the
Modern, free, democratic civilization r e p          use of scarce resources and thus needs
resents the “final” stage o human social             to be economized for the sake o effi- f
organization resulting from “thereplace-             ciency.Il These defenses being popularly
ment o [sanctified] custom and author-               accepted, “theethic of liberalcivilization
ity.. . bythe still experimental attempt to          holds . . . both that men want to be free
base social order on secular rational-               and have a right to be free and that they
ity-government by discussion.”8 This                 ought to be free, even if they themselves
modern, free society is characterized by             feel that their affairs might be technically
the use of intelligence and critical delib           better managed for them as slave by
eration as a means o social organization.            some possible master.”12    Knight informs
Consideration of the impact and difficul-            us, hence, that the essential social-ethi-
ties associated with the transition to a                               f
                                                     cal principle o liberal individualism is
social order based upon government by                “that all relations between men ought
discussion occupied the bulk of Knight’s             ideally to rest upon mutual free consent,
career as a social scientist and philoso-            and not coercion either on the part o      f
pher.                                                                               f
                                                     individuals or on the part o ‘society’ as
    This process of emergent evolution               politically organized in the state.13
Knight termed the “Liberal Revolution.”                  As a libertarian moralist and econo-
The primary and important result o the       f       mist Knight’s attention was focused pri-
Liberal Revolution, in Knight’s view, was            marily upon what is called “economic
an inversion o the idea of freedom from              freedom,” though he argued that eco-
that of preliberal culture. This inversion           nomic and other freedom could not be
resulted from the implanting of the idea             separated.I4As a result Knight felt it was
o freedom as the primary ethical ideal:              unfortunate that the term laissez-faire
“The whole idea of a right to freedom                has been construed solely as economic
squarely inverts the preliberal doctrine             freedom when the term originally meant
o original sin, the idea that if everyone            freedom and was supposed to have ap-
does anything he wants to do he will be              plied to all individual and social life.I5In
wrong, thus that people ought on prin-                       f
                                                     spite o this he felt that special emphasis
ciple to be restrained and directed by               upon freedom in economic relations was
a ~ t h o r i t y . ” ~ fact, Knight felt that the   justified “by the fact that it is basic to
 development of the idea of a right to                               f
                                                     other forms o freedom, as historical fact
 freedom and its primacy in the scale of             and general consideration join in prov-
 human values was so important a change              ing.”I6“As well as because economic ac-
 in human consciousness that he termed               tivity. . . must be the main concern o the
 it “the greatest revolution of all time or           bulk of the p~pulation.”’~
 since the dawn o conscious life.”I0                     For Knight economic theory, through
     Knight presented three arguments in              its models of free market organization,
 favor o the right to freedom and the
           f                                          provided a blueprint for a social order

260                                                                                  Spring 1993
that would achieve efficiency, justice,          choose his own ends and pursue them in
and freedom. The model o perfect com-            his own way, and an obvious corollary,
petition demonstrates the possibility of         the duties and moral obligation of each
social relations based upon association          to respect the same right in others.’’21
o individuals through voluntary coop
 f                                               Again it is largely the task of economics
eration for mutual advantage. Under the          to demonstrate the compatibility be-
conditions o “perfect competition,” eco-         tween the free market system and the
nomic science demonstrates that                  ethical value of freedom:
  ...this organization achieves efficiency in      Assuming that men have a right to want
  the utilization of resources and justice in      and strive to get whatever they do want..
  the distribution of the joint product, effi-     .so long as their conduct does not infringe
  ciency being defined by the ends chosen          the equal rights of others, the business of
  by individuals and justice by the principle      the principles of economics . . . is to ex-
  of equality in relation to reciprocity, giv-     plain that, and how the organization
  ing each the product contributed to the          through buying and selling enables every-
  total by its own performance (“what aman         one to do whatever he tries to do.. .many
  soweth he shall also reap”). . . .any higher     times more effectively than would be pos-
  form of justice is provided for by freedom       sible if each used his own means in a self
  to cooperateonany other terms orthrough          sufficient economic life. Everyone is free,
  any other form of organization on which          as a Crusoe i free, and also enjoys the
  the parties may agree.l*                         nearly infinite gain in the effectiveness of
                                                   action possible through organization. In
   As a libertarian, Knight discounted             fact, the individual’s range of choice is
the arguments in favor of free markets             extended in a new dimension beyond that
based solely upon the utilitarian prin-            of Crusoe; he can produce anything he
ciple o maximum satisfaction. His advo-            pleases, or make any specific contribution
cacy o free markets was not predicated             to production, and independently con-
solely upon the standards of efficiency in         sume anything or combination produced
the form of Pareto Optimality stemming             by anyone anywhere in the economy. No
from neoclassical welfare economic^.^^             other possible method of organization will
The difficultywith the utilitarian defense         afford this twofold freedom. And anyone is
                                                   also free t o stay out of the system and live
o markets and freedom a s a means to an            his own self-sufficient life. . . . And all are
end is that if it can be demonstrated that         free to give and receive goods or counsel
some form of coercion (such as plan-               and to cooperate o n any terms other than
ning) may generate more consumer sat-              those set by the market which they, the
isfaction than through free cooperation,           parties concerned, may agree in prefer-
then there is no reason to prefer the free         ring on moral grounds for any reason.22
market as an organizational form.
Knight’s commitment was not to maxi-             Thus the market system is the embodi-
mum satisfaction but rather to maximum           ment of complete freedom.
freedom. Therefore such a demonstra-                 However, as Knight admitted,this pic-
tion would not have led Knight to accept                f
                                                 ture o the market system is one-sided
the validity of such coercion. Freedom as        and utopian in sound. The perfectlycom-
an end in itself was much more impor-            petitive market system described is that
tant, he felt.20 a result Knight’s advo-         of a social order held together solely by
cacy o free markets was based upon the
       f                                         the single ethical principle of non-coer-
connection between free economic rela-           cion. It is a picture that is both unrealistic
tions and individual freedom.                    (it would have to be operated through
   The case for free markets, he tells us,       vending machines!) and u n r e a l i ~ a b l e . ~ ~
“rests upon the right o any person to
                           f                                            f
                                                 The assumptions o the perfectly com-

Modern Age                                                                                   261
petitive model are made for purposes of        ingthelaw. “The problem is oneof achiev-
theory; in practice theactual workings of      ing rational consensus, as to desirable
the market will deviate from those theo-       change, not of             So long as laws
retical conditions generating what Knight      are made and changed on the basis of
referred t o as “mechanical defects,”orin      voluntary agreement, through consen-
the modern vernacular, “Marketfailures.”       sus, there is no formal enforcement of
Among the mechanical difficulties asso-        the law.28  Thus a society remains as free
ciated with the market system are those        as it is in the perfect market. Since “dis-
of monopoly, public goods, externalities,      cussion is inherentlyfree-in fact it may
and the business cycle. Thus “inpractice                                f
                                               be viewed as a form o exchange,” de-
governments have to set some limits to         mocracy is thus an extension of the prin-
individual freedom and freedom of asso-        ciple of free choice as exhibited in free
ciation and t o perform many functions         markets through discussion and debate
on behalf of the community as a                about the law.30
    In addition to the problems caused by         By discussion Knight meant something
the mechanical defects of the system,          other than the mere assertion of one’s
there is also the problem o conflicts of       wants. He suggested:
interest implying problems about rights
and ideal ends. Knight referred to these
                                                 . . . the following three things, among oth-
                                                 ers, are not discussion: (a) talking ma-
as a “conflict of values.” The primary           chines grinding out sound waves at each
socialvalues consist of freedom, justice,        other, @)economic menconfrontingeach
order, security, progress, and culture.          other with propositions beginning with, ‘I
The market system facilitates coopera-           want,’ and (c) ‘prophets’ uttering diver-
tion between individuals and groups in-          gent dicta beginning, ‘God says.”’
sofaras they wish to cooperate and inso-
far as their interests are mutual. But by         Just as the picture of the perfect mar-
the same token the market system can-          ket represented an unattainable ideal
not solve other types of social prob-          subject to flaws in actual practice, so
l e m ~Thus, free society must find ways
          .~~                                  also does democracy fall short of its
t o resolve such conflicts as arise and               f
                                               ideal o “antinomiananarchy.”Sincecom-
also correct the mechanical defects of         plete agreement is seldom achieved,
the system.                                    maximum freedom requires that indi-
    The primacy of freedom as a value in       viduals possess the right to leave the
Western culture implies that only certain      group when disagreement with t h e
methods of solving social conflicts are        group’s decision arises. But the nature of
appropriate. The economic organization         the modern state is such that this free-
implied by the principle of freedom is         dom can not be possible.32    Secondly, as
that of the free market. Similarly, the        democracy is practiced in the modern
political organization compatible with a       world, it is essentially competitive poli-
free society is that of democracy and its      tics analogous to a competitive market.=
corollary of representative government.16      Thus it is subject to similar weaknesses,
    By democracy Knight meant open dis-        and specifically the tendency to create
cussion among free men concerning the          inequality, the concentration of power,
making and changing o laws-hence his           i.e. monopoly, and the agency problem.
advocacy of Lord Byron’s famous defini-        We are thus confronted with two flawed
tion o democracy as “government by             alternatives of the market and competi-
discussion.” The ideal of noncoercion          tive politics.
still remains the basic ideal to be achieved      It is in his comparison of these two
in developingasocial procedure in chang-       mechanisms that the conservative ele-

262                                                                             Spring 1993
ment of Knight’s thought is most obvi-           knowledge and information necessary
ous. With regard to the relative failures        for intelligentaction.According to Knight,
of each, it was clearly Knight’s opinion         four different types of knowledge are
that those of politics were more severe          necessary. It must be possible to predict
than those of the market. In fact many of        the natural course of events in order to
the most serious economic flaws could            know what would happen in the absence
be traced to the application of politics to      of any action. Secondly,it must be known
the market.34Given the similarities of           what alternatives are possible, given the
such (the tendency to monopoly, etc.)            available resources. Thirdly, one must
and the differences (anyone may leave the        predict the outcome of each alternative
market system), Knight concluded that:           action. Finally, the comparative desir-
  . . . in so far as society is committed to     ability of each alternative must be as-
  freedom as a basic ideal, there must be a      sessed, which itself requires an agree-
  presumption in the favor o the economic
                               f                 ment about standards for evaluation to
  order because it is free in a sense and to a   be used for comparison.38In Knight’s
  degree that a political order is not and                          f
                                                 opinion it was o the utmost importance
  cannot be. That means minimizing the           to stress the limitations of existingknowl-
  role of government, carrying freedom as        edge and of that likely to be attainable in
  far as it can go, so long as it does not       the future.39
  conflict too much with some other social            With regard to the injunction to “com-
  value that is deemed more important.           pare the alternatives,” Knight asserted
                                                 that thereare essentiallytwomajor forms
   It should be obvious that Knight’s ad-        of alternatives. One is political action,
vocacy of the market system was not              meaning the use of government-the
based upon the view of the market as             passing of laws. The other is free action
ideal. The issue was never one of eco-           by persons on a voluntary basis. Com-
nomics or politics, but only of the best         parisons of these two alternatives were,
proportion between markets and politi-           in his opinion, usually flawed by “the
cal action. Knight’s advocacy of markets,        romantic character of political power
then, should not be taken as a complete          and the psychological law that distance
rejection of political action, or of all re-     . . . create[s] a systematic temptation to
form efforts. Knight was very skeptical          imagine a political system as much or
about the possibilities o successful re-
                           f                     moreidealized in comparison with prob-
form.                                            able reality than the most extreme con-
   In spite of his skepticism about the          ception of open-market economic order
possibility of reform, he did haveamodel         ever was.”4o  These difficulties led Knight
of how reform ought to take place. There         to conservative conclusions about the
are, Knight tells us, two primary axioms         possibility that misguided, though per-
of conduct. The first is that “it is unwise      haps well intentioned, social action would
to act unless action can be based upon           lead to new and worse evils.41      Thus he
intelligent belief and choice among criti-       concluded that
cally appraised possibilities.” The sec-           Men need above all to learn to be reason-
ond “is the injunction t o act when this           ably satisfied with the possible, which
condition is f~lfilled.”~’Thedifficultythat        means possible progress, beginning with
Knight foresaw was that much political             progressively knowing what it means and
action violates the first axiom in some            how to achieve it, and not expecting any
form or other.                                     solutions to social problems. The primary
   The primary problem centers on the              objective is to avoid false solutions, or
difficulties associated with acquiring the         remedies worse than thediseases they are

Modern Age                                                                              263
  intended tocureor alleviate. That achieve-     1. Frank H. Knight, Intelligence and Democratic
  ment is so far in the future that one is       Action (Cambridge, Eng., 1960), 6. 2. Don Patinkin,
  inclined tosettle for negative action, post-   “Frank Knight as Teacher,” American Economic
                                                 Review (Dec. 1973), 1047-1048. 3. Intelligence and
  poning attack on positive and properly         Democratic Action, 121. 4. Frank H. Knight, On the
  controversial issues until the bogus ones      History and Method o f Economics (Chicago, 1956),
  are disposed of. People must be educated       256. 5. “Frank Knight and the Tradition of Liberal-
  out of unreasonable expectation from the       ism,”Journal o fPolitical Economy (May/June 1974),
  political order as an agencyfor remedying      571. 6. Frank H. Knight, The Ethics of Competition
  its defects, real or supposed.42               (Chicago, 1935), 45. 7. On the History and Method o f
                                                 Economics, 285. 8. Ibid., 286. 9. Intelligence and
   Thus we are led back once more to his         Democratic Action, 124. 10. On the History and
                                                 Method o f Economics, 289. 11.Ibid., 259. 12. Ibid.,
recurrent theme that the major social            264. 13. Frank H. Knight, Freedom and Reform
problems are largely problems o educa-           (Chicago, 1947), 60. 14.Ibid.,242. 15. On the History
tion, of the need to develop a critical          and Method of Economics, 288. 16. Freedom and
attitude. As Knight remarked: “Human             Reform, 64. 17. Ibid., 242. 18. On the History and
                                                 Method of Economics, 292. 19. Ibid., 269. 20. Ibid.,
beings are born devoid of either con-            264. 21.Ibid.,291. 22. Ibid.,264. 23. FrankH. Knight
scious purpose or capacity for intelli-          and T. W. Merriam, The Economic Order and Reli-
gent action -neither free nor fit for free-      gion, 105. 24. On the History and Method o f Econom-
                                                 ics, 264. 25. Ibid., 270. 26. Ibid., 288. 27. Freedom
dom. In consequence, education is a pri-         and Reform, 217. 28. Ibid., 255. 29. Ibid., 357. 30.
marytaskof adult             Frank Knight        Intelligence and Democratic Action, 2. 31. Freedom
devoted his life to the task o equipping
                              f                  and Reform, 54. 32. Ibid., 415. 33. The Ethics o f
men and women with the capacity for              Competition, 292. 34. Intelligence and Democratic
                                                 Action, 112; The Ethics of Competition, 299. 35.
intelligent action and critical judgment.        Intelligenceand DemocraticAction, 112. 36. lbid., 11.
Indeed, it was his most important and            37. Ibid., 14. 38. Ibid., 21. 39. Ibid., 146. 40. On the
enduring legacy.                                 History and Method o f Economics, 293. 41. The
                                                 Economic Order and Religion, 108. 42. Intelligence
                                                 and Democratic Action, 10. 43. Ibid., 33.

264                                                                                       Spring 1993

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