Hostname: page-component-586b7cd67f-g8jcs Total loading time: 0 Render date: 2024-11-22T19:33:30.898Z Has data issue: false hasContentIssue false
  • English
  • Français

The common sense of economics and divergent approaches in economic thought: a view from Risk, Uncertainty, and Profit

Published online by Cambridge University Press:  31 March 2021

Peter J. Boettke  and
Rosolino A. Candela
Peter J. Boettke
Affiliation:
Department of Economics, George Mason University, Fairfax, VA22030, USA
Rosolino A. Candela*
Affiliation:
Mercatus Center, George Mason University, Fairfax, VA22030, USA
*
*Corresponding author. Email: [email protected]
Get access Rights & Permissions [Opens in a new window]

Abstract

This paper evaluates the contribution of Risk, Uncertainty, and Profit to the development of economic theory in the 20th century. Our argument in this paper is twofold. First, we contend that this book embodied what had been the common knowledge of early neoclassical economics prior to World War II (WWII). Second, we also argue that embryonic to Knight's account of economics were two divergent approaches to economic thought that emerged after WWII. The first approach, what has come to be known as microeconomics, is characterized by utility maximization under fixed price, income, and institutional parameters that approximate equilibrium. This first approach is distinct from a second approach, referred to as price theory, in which prices are not sufficient statistics, as in microeconomics, but operate as guides to consumption and production decisions under alternative institutional arrangements. This second approach not only represented the continuation of the mainline1 of economic thought from its classical and early neoclassical roots. It also embodies the basis for Knight's understanding of uncertainty, profit and entrepreneurship, as well as its implications for economic organization and social progress.

Keywords

EntrepreneurshipFrank Knightmicroeconomicsprice theory
Type
Research Article
Information
Journal of Institutional Economics , Volume 17 , Special Issue 6: Special Issue on the Centenary of Frank H. Knight's Risk, Uncertainty, and Profit , December 2021 , pp. 1033 - 1047
Copyright
Copyright © Millennium Economics Ltd 2021

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Barzel, Y. (1987a), ‘The Entrepreneur's Reward for Self-Policing’, Economic Inquiry, 25(1): 103–116.CrossRefGoogle Scholar
Barzel, Y. (1987b), ‘Knight's “Moral Hazard” Theory of Organization’, Economic Inquiry, 25(1): 117–120.CrossRefGoogle Scholar
Beckert, J. and Bronk, R. (eds.) (2018), Uncertain Futures, New York: Oxford University Press.CrossRefGoogle Scholar
Bernstein, P. L. (1996), Against the Gods: The Remarkable Story of Risk, New York: John Wiley and Sons.Google Scholar
Boettke, P. J. (2012), Living Economics: Yesterday, Today, and Tomorrow. Oakland: The Independent Institute.Google Scholar
Boettke, P. J. and Candela, R. A. (2014), ‘Alchian, Buchanan, and Coase: A Neglected Branch of Chicago Price Theory’, Man and the Economy: The Journal of the Coase Society, 1(2): 189–208.CrossRefGoogle Scholar
Boettke, P. J. and Candela, R. A. (2017a), ‘Price Theory as Prophylactic against Popular Fallacies’, Journal of Institutional Economics, 13(3): 725–752.CrossRefGoogle Scholar
Boettke, P. J. and Candela, R. A. (2017b), ‘The Liberty of Progress: Increasing Returns, Institutions, and Entrepreneurship’, Social Philosophy and Policy, 34(2): 136–163.CrossRefGoogle Scholar
Boettke, P. J. and Candela, R. A. (2020a), ‘Where Chicago Meets London: James Buchanan, Virginia Political Economy, and Cost Theory’, Public Choice, 183(3/4): 287–302.CrossRefGoogle Scholar
Boettke, P. J. and Candela, R. A. (2020b), ‘Stigler and the Science of Economics: A Tale of Two Knights’, in Freedman, C. (ed.), George Stigler: Enigmatic Price Theorist of the Twentieth Century, New York: Palgrave Macmillan, pp. 721–753.CrossRefGoogle Scholar
Boettke, P. J., Haeffele-Balch, S. and Storr, V. H. (2016), ‘Introduction: What is Mainline Economics?’, in Boettke, P. J., Haeffele-Balch, S., and Storr, V. H. (eds.), Mainline Economics: Six Nobel Lectures in the Tradition of Adam Smith. Arlington: Mercatus Center, pp. 1–22.Google Scholar
Boudreaux, D. J. and Holcombe, R. G. (1989), ‘The Coasian and Knightian Theories of the Firm’, Managerial and Decision Economics, 10(2): 147–154.CrossRefGoogle Scholar
Boulding, K. E. (1946), The Economics of Peace, New York: Prentice-Hall.Google Scholar
Buchanan, J. M. (1964), ‘What Should Economists Do?’, Southern Economics Journal, 30(3): 213–222.CrossRefGoogle Scholar
Buchanan, J. M. (1999 [1968]), The Collected Works of James M. Buchanan: Volume 5, The Demand and Supply of Public Goods, Indianapolis: Liberty Fund.Google Scholar
Buchanan, J. M. (2020 [2010]), ‘Chicago School Thinking: Old and New’, in Boettke, P. J. and Marciano, A. (eds.), The Soul of Classical Political Economy: James M. Buchanan From the Archives, Arlington: Mercatus Center, pp. 439–447.Google Scholar
Buchanan, J. M. and Tullock, G. (1962), The Calculus of Consent: Logical Foundations of Constitutional Democracy, Ann Arbor: University of Michigan Press.Google Scholar
Buchanan, J. M. and Yoon, Y. J. (eds.) (1994), The Return to Increasing Returns, Ann Arbor: University of Michigan Press.CrossRefGoogle Scholar
Buchanan, J. M. and Yoon, Y. J. (1995), ‘Constitutional Implications of Alternative Models of Increasing Returns’, Constitutional Political Economy, 6(2): 191–196.CrossRefGoogle Scholar
Buchanan, J. M. and Yoon, Y. J. (1999), ‘Generalized Increasing Returns, Euler's Theorem, and Competitive Equilibrium’, History of Political Economy, 13(3): 511–523.CrossRefGoogle Scholar
Burgin, A. (2009), ‘The Radical Conservativism of Frank H. Knight’, Modern Intellectual History, 6(3): 513–538.CrossRefGoogle Scholar
Bylund, P. L. and Manish, G. P. (2016), ‘The Mises-Knight Theory of Uncertainty and its Implications for Entrepreneurship, Equilibrium and the Theory of the Firm’, Research in the History of Economic Thought and Methodology, 34B: 305–336.CrossRefGoogle Scholar
Candela, R. A. (2020), ‘Are Markets Imperfect? Of Course, But That's The Point!’, The Library of Economics and Liberty, https://www.econlib.org/are-markets-imperfect-of-course-but-thats-the-point/.Google Scholar
Chamberlin, E. H. (1933), The Theory of Monopolistic Competition, Cambridge: Harvard University Press.Google Scholar
Emmett, R. B. (2009), Frank Knight and the Chicago School in American Economics, New York: Routledge.CrossRefGoogle Scholar
Emmett, R. B. (2020), ‘The Writing and Reception of Risk, Uncertainty and Profit’, Cambridge Journal of Economics, forthcoming. Available at SSRN: https://ssrn.com/abstract=3591596Google Scholar
Foss, N. J. (1993), ‘More on Knight and the Theory of the Firm’, Managerial and Decision Economics, 14(3): 269–276.CrossRefGoogle Scholar
Foss, N. J. and Klein, P. G. (2012), Organizing Entrepreneurial Judgment: A New Approach to the Firm, New York: Cambridge University Press.CrossRefGoogle Scholar
Hammond, J. D., Medema, S. G. and Singleton, J. D. (eds.) (2013), Chicago Price Theory, 3 Vols., International Library of Critical Writings in Economics 274. Cheltenham: Edward Elgar.Google Scholar
Hirshleifer, J., Glazer, A. and Hirshleifer, D.. (2005), Price Theory and Applications: Decisions, Markets, and Information (7th edn), New York: Cambridge University Press.CrossRefGoogle Scholar
Irwin, D. A. (2018), ‘The Midway and Beyond: Recent Work on Economics at Chicago’, History of Political Economy, 50(4): 735–775.CrossRefGoogle Scholar
Jaffe, S., Minton, R. and Mulligan, C. B. and Murphy, K. M.. (2019), Chicago Price Theory, Princeton: Princeton University Press.Google Scholar
Kay, J. and King, M.. (2020), Radical Uncertainty: Decision-Making beyond the Numbers, New York: Random House.Google Scholar
Keynes, J. M. (1964 [1936]), The General Theory of Employment, Interest, and Money, New York: Harcourt, Brace & World.Google Scholar
Kirzner, I. M. (1988), ‘The Economic Calculation Debate: Lessons for Austrians’, The Review of Austrian Economics, 2(1): 1–18.CrossRefGoogle Scholar
Knight, F. H. (1936), ‘The Place of Marginal Economics in a Collectivist System’, American Economic Review, 26(1): 255–266.Google Scholar
Knight, F. H. (1940), ‘Socialism: The Nature of the Problem’, Ethics, 50(3): 253–289.CrossRefGoogle Scholar
Knight, F. H. (1946), ‘The Sickness of Liberal Society’, Ethics, 56(2): 79–95.CrossRefGoogle Scholar
Knight, F. H. (1964 [1933]), ‘Preface’, in Risk, Uncertainty and Profit, New York: Augustus M. Kelley.Google Scholar
Knight, F. H. (1964 [1948]), ‘Preface’, in Risk, Uncertainty and Profit, New York: Augustus Kelley.Google Scholar
Knight, F. H. (1964 [1957]), ‘Preface’, in Risk, Uncertainty and Profit, New York: Augustus Kelley.Google Scholar
Knight, F. H. (1967 [1933]), The Economic Organization, New York: Augustus M. Kelley.Google Scholar
Knight, F. H. (1971 [1921]), Risk, Uncertainty and Profit, Chicago: University of Chicago Press.Google Scholar
Langlois, R. N. (1992), ‘Transaction-cost Economics in Real Time’, Industrial and Corporate Change, 1(1): 99–127.CrossRefGoogle Scholar
Langlois, R. N., and Coşgel, M. M. (1993), ‘Frank Knight on Risk, Uncertainty, and the Firm: A New Interpretation’, Economic Inquiry, 31(3): 456–465.CrossRefGoogle Scholar
Lavoie, D. (1985), Rivalry and Central Planning: The Socialist Calculation Debate Reconsidered, New York: Cambridge University Press.Google Scholar
Machovec, F. M. (1995), Perfect Competition and the Transformation of Economics. New York: Routledge.CrossRefGoogle Scholar
Marshall, A. (1920 [1890]), Principles of Economics (8th edn), London: Macmillan.Google Scholar
Medema, S. G. (2014), ‘Identifying a ‘Chicago School’ of Economics: On the Origins, Evolution, and Evolving Meanings of a Famous Brand Name’, SSRN Working Paper, available at SSRN: https://ssrn.com/abstract=2479734.Google Scholar
Mises, L. V. (1966 [1949]), Human Action: A Treatise on Economics (3rd edn), Chicago: Henry Regnery.Google Scholar
Mises, L. V. (2013 [1960]), Epistemological Problems of Economics, Indianapolis: Liberty Fund.Google Scholar
Mitch, D. (2016), ‘A Year of Transition: Faculty Recruiting at Chicago in 1946’, Journal of Political Economy, 124(6): 1714–1734.CrossRefGoogle Scholar
Mitchell, W. C. (1922), ‘Risk, Uncertainty and Profit by Frank H. Knight’, American Economic Review, 12(2): 274–275.Google Scholar
Rothbard, M. N. (1962), Man, Economy, and State: A Treatise on Economic Principles, Princeton, NJ: D. Van Nostrand.Google Scholar
Stigler, G. J. (1982), The Economist as Preacher, and Other Essays, Chicago: University of Chicago Press.Google Scholar
Viner, J. (2013), Lectures in Economics 301, New Brunswick: Transaction Publishers.Google Scholar
Walras, L. (1954 [1874]), Elements of Pure Economics or the Theory of Social Wealth, W. Jaffé (trans.). London: George Allen and Unwin.Google Scholar
Watkins, G. P. (1922), ‘Knight's Risk, Uncertainty and Profit’, Quarterly Journal of Economics, 36(4): 682–690.CrossRefGoogle Scholar
Weyl, E. G. (2019), ‘Price Theory’, Journal of Economic Literature, 57(2): 329–384.CrossRefGoogle Scholar
Young, A. (1928), ‘Increasing Returns and Economic Progress’, Economic Journal, 38(152): 527–542.CrossRefGoogle Scholar