Frank Knight and the Chicago School

24 April 2007 at 11:31 pm 3 comments

| Peter Klein |

Frank Knight is generally regarded, along with Jacob Viner, as the founder of the Chicago school of economics. But Knight’s relationship to the later Chicago school of Friedman, Stigler, and Director is ambiguous. Knight’s theories of capital and competition were incorporated into the mainstream Chicago (and contemporary neoclassical) tradition but his account of profit and entrepreneurship, his quasi-Austrian methodology (inherited from his teacher Herbert J. Davenport), and his eclectic social and political theories were largely ignored or forgotten.

Ross Emmett has a new paper, “Did the Chicago School Reject Frank Knight? Assessing Frank Knight’s Place in the Chicago Economics Tradition,” exploring this in detail. The conclusion: “Without [Knight's] initiation of eaching price theory and persistence in defending it, there ould be no Chicago tradition. Yet the methodological approach and research infrastructure which propelled the Chicago School to a central position in the economics profession owe little or nothing to him.”

(Incidentally, critics of economics often target a stylized version of Chicago economics circa 1970 (see here), but these critics often seem unaware that the Chicago school of economics no longer exists. While there is still a (top-notch) economics department at the University of Chicago, there is no longer a distinct Chicago approach. The economics taught at Chicago is the same as the economics taught at MIT, Harvard, Stanford, or any other top mainstream department.)

Entry filed under: - Klein -, Methods/Methodology/Theory of Science, Myths and Realities. Tags: .

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3 Comments Add your own

  • 1. Shawn Ritenour  |  25 April 2007 at 9:20 am

    It is quite possible that Knight’s own model of perfect competition itself worked to make his ideas on entrepreneurship irrelevant. In a world of perfect competition (including perfect knowledge) what room is there for the entrepreneur? It may be that one has to choose between perfect competition and entrepreneurship, and in choosing perfect competition, Chicago necessarily had to forego the entrepreneur.

  • 2. Ross Emmett  |  6 May 2007 at 8:57 pm

    Shawn is right. In fact, in Risk, Uncertainty and Profit, Knight sets up the theory of perfect competition to exclude entrepreneurship. Then he introduces uncertainty as a first step away from the world of perfect competition, and finds room for the entrepreneur.

    By adopting perfect competition, Chicago did forego the entrepreneur (as in the joke: how many Chicago economists does it take to change a lightbulb?. Answer: none, if the lightbulb needed changing, the market would have done it.)

  • 3. Admiral  |  8 November 2008 at 12:28 am

    Not so fast. Perfect competition and the entrepreneur are not mutually exclusive. Any Intro to Micro book worth its weight distinguishes between the short-run and long-run for the sake of the entrepreneur and perfect competition in the long run.

    Certainly there are issues with the whole market structure concept of perfect competition. Knight, sad though he was in many respects, understood the spectral nature of these market structures from perfect competition to monopoly.

    Knight can be attacked for many things. This is not one of them.

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