Ross Emmett

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Frank Knight: “Can the Mind Solve the Problems Raised by Its Liberation?”

Saturday, November 19th, 2011

Talk prepared for session on Frank Knight’s Economic and Social Philosophy at the Southern Economic Association meetings in Washington, DC, November 2011. I was not able to attend, so recorded my comments.

Can the Mind Solve the Problems Raised by Its Liberation?

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Sources identified in the talk:

Buchanan, J. M. (1979), “Natural and Artefactual Man,” in What Should Economists Do? Indianapolis, IN: Liberty Fund.
Knight, F. H. (1921), Risk, Uncertainty, and Profit. Boston: Houghton Mifflin.
Knight, F. H. (1922), “Ethics and the Economic Interpretation,” Quarterly Journal of Economics, vol. 36, May, pp. 454-81.
Knight, F. H. (1923), “The Ethics of Competition,” Quarterly Journal of Economics, vol. 37, August, pp. 579-624.
Knight, F. H. (1960), Intelligence and Democratic Action. Cambridge, MA: Harvard University Press.
Rawls, J. (1971), A Theory of Justice. Cambridge, MA: Belknap Press of Harvard University Press.
Sen, A. (2009), The Idea of Justice. Cambridge, MA: Belknap Press of Harvard University Press.

The text of my talk:

Can the Mind Solve the Problems Raised by Its Liberation?

Frank Knight concluded his Intelligence and Democratic Action with the following words:

I have been raising questions to which I, at least, do not see the answers—questions which, … frankly seem to justify doubts about the future of free society. If it is to survive society itself must manage somehow to work a very considerable change in human nature as it has come down into this liberal epoch. …
The question [is] whether human nature has what it takes to solve the problems which have been raised by its liberation.

Over the last twenty years of his life, Frank Knight devoted his attention to the manuscript of a book which remained incomplete at his death on the future of liberal society. Central to that book was a theme we can call “the quest for rational norms.” For Knight, the central problem facing liberalism was not “markets or state?” or even “what’s the best constitutional arrangement?” Instead, he believed that liberal society needed to establish a set of rational norms that would both constrain and guide the freedom liberalism had provided us.

In the manuscripts he wrote during those twenty years, he began to organize his response to the question about rational norms in three parts. First, what norms exist for thinking about economic policy in a free society? Secondly, what norms should guide politics in a free society? And finally, what ethical norms are required for a free society?

As I said, Knight’s book remained unfinished at his death, but we can summarize his thinking on each of these areas from the drafts that were written, from the book Intelligence and Democratic Action, and his other publications.

In economics, the quest for rational norms was reasonably clear to Knight. Throughout his entire career, going back to a point shortly after he completed Risk, Uncertainty and Profit, Knight argued that economics could not be a predictive science. Hence, economics was not directly a guide to policy. Instead, he argued in different ways, that what economics did was provide a set of principles that guide our thinking about economic policy in a free society. A central concern of his was the problem of value. Knight’s solution to the problem of value lay in the alternative cost tradition, today identified most often as the opportunity cost tradition.

We could explore Knight’s economics principles further, but that would only take us further into things that you as economists could as easily spell out as I can, so I’m going to move on to politics.

In the quest for rational norms in politics, Knight has a more complex approach, because he is torn between two issues. Liberalism, as a tradition, affirms the importance of inherited traditions in shaping individual rationality. If we will, we could follow Adam Smith and say that our moral sentiments are shaped by the range of experiences our culture provides us. For Knight, an important component of this, which is seldom observed, is his early friendship with Edward Sapir, whose Sapir-Whorff hypothesis regarding language and culture, suggests that language shapes the way that we can conceptualize the world around us. Thus, for Knight, our rationality is socially embedded. I might point out here that in his debates over rationality and culture with Robert Hutchins, Robert Redfield, and John Nef—debates that provided the impetus for the creation of the University of Chicago’s Committee on Social Thought—Knight sided with Redfield in rejecting the notion of a universal or natural moral rationality.

And yet at the same time, Knight believed, unlike some of his colleagues in the early postwar liberal movements, that liberalism was a revolutionary movement that had emerged by overthrowing the cultural authority of past traditions, esp. those traditions emerging from religion and absolutism. Hence, for Knight, there was a two-fold set of rational norms. On the one hand, we are rule-followers; on the other, we are rule-breakers. Thinking constitutionally, for Knight, was the way that humans should break law: that is, Knight argued, that where there were problems in our political order, what was needed was rational discussion of how to break, and re-make, the law.

As is typical in his work, Knight does not provide us with much more guidance than these comments suggest. Still, I find it interesting that the people that perhaps represent most closely what Knight might propose were he to spell out more fully the political norms that he would urge us to follow, are those who are often seen as antithetical to the tradition of liberalism in which we often place Knight. I’m thinking here in particular of John Rawls and Amartya Sen. I mention these two because John Rawls was reading Knight’s “Ethics of Competition” as he was working out his theory of Justice as Fairness in the 1960s. There are many similarities, once one recognizes Knight’s rationalistic side, between Rawls’ goals and Knight’s goals. And Amartya Sen, like Knight, is very concerned about those who, while free, do not have the capacity to participate effectively in a free society. Indeed, Knight spoke sometimes of the need for “effective freedom”; not just the absence of coercion, but the means and capacity for participation that improves the quality of one’s life.

Finally, ethics. As you know, Knight was concerned about ethics for the entirety of his life. From at least the 1922-23 essays “Ethics and the Economic Interpretation” and “The Ethics of Competition,” he returns over and over again to the question of what ethical norms can guide our action, both individually and as a society. There are two key signposts that we might point to that suggest what Knight might tell us about ethics in a liberal society. The first of those has been nicely captured by Jim Buchanan in the expression that concludes his essay “Natural and Artefactual Man”: what the free person wants is the freedom to become the person he wants to be. This is a theme that resonates throughout Knight’s work: that what freedom means ethically is the freedom to become someone that you currently are not, and that becoming is what people want more than satisfying existing wants. Hence his attack on utilitarianism; hence his attack on moralism and scientism as the substitution of an external authority for the personal quest to define the norms that will shape the quality of one’s life. In part, Knight’s comments on the quest for political norms for social action are an extension of this: society is also in the process of becoming, and freedom is valuable because it enables us both personally and collectively to become what we want to be.

The other theme is also a Buchanan theme: that is, the necessity of relatively absolute absolutes. Ethics, for Knight, does not exist in a cultural vacuum any more than economics and politics do. Cultural history matters for Knight; the values that we have are those which we have inherited from the past, and as we go forward, we do not completely remake them at one time. There are always some things we hold constant while we consider whether to change something else. Thus, for the moment, there are some values we hold as “absolute,” but always with the caveat that we remain free later to put them up for criticism: they are relatively absolute absolutes.

Hence, once again, Knight does not provide us with rational norms for ethical action. If anything, his ethical principle is the one he mentioned in his AEA presidential address: have lots of principles and make a judgment as to which are relevant to any specific decision.

The same holds true for his ethical standard for a liberal society. Does the society force one to accept norms which are not considered ultimately changeable? Does society enforce norms that prevent you, in some fashion, from becoming the person which you could become?

You may notice that in each of Knight’s three areas of concern, he provides little that suggests free society will succeed. Nor do his concerns fit together into a nice neat system of thought which one can apply to the social and economic problems of the day. Knight was always better at upsetting the course of normal economic and philosophical discussion by unveiling the constraints of its underlying assumptions than he was at system-building. But perhaps even today, reminders of our need for humility in the face of the dynamic complexity and novelty of human experience can prompt us to remember what we wish to become, and the need for critical judgment. That is what reading Knight today reminds us of.

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Liberty in Classical Liberalism Talk

Sunday, November 13th, 2011

What is liberty? What does it mean to be free? How do we assure a free society?

On Wednesday, November 16th, I open a series of talks at James Madison College on Liberty. Here is the information. My talk will be on Liberty in Classical Liberalism.

The James Madison College Student Senate and MSU’s Young Americans for Liberty are pleased to invite you to a speaker series defending the importance of freedom, however it may be conceived. From communism to anarchy, be prepared for a lively discussion on the meaning of liberty.

Come hear Professor Ross Emmett open the series with a conversation on the meaning of classical liberalism in modern society.

6:30pm on Wednesday the 16th of November in room 331 Case Hall.

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Entrepreneurs & Risk-Taking

Saturday, May 29th, 2010

At the recent TEDx Lansing, “Biggby Bob” – aka Bob Fish, entrepreneur and founder of Biggby Coffee – said the following about entrepreneurial risk-taking (I paraphrase, but you find the YouTube link for his talk at the end of this post):

Sure, entrepreneurs take risks. But they don’t see it that way. They have knowledge about a particular market or problem that tells them that what they are planning to do will work. Obstacles have to be overcome, sure, but they are confident they will succeed if they work hard. From the “outside” the entrepreneur’s actions look like risk-taking. But we’re not gambling; we know what we’re doing.

Bob managed to weave together three key themes regarding entrepreneurial action in his brief comment. Trust the entrepreneur to say it succinctly. In typical academic fashion, I’ll pull these apart a bit in order to explain why I agree with him.

Theme 1: Risk

From a “macro” perspective of society-as-a-whole, we know that our current economic resources, technology, and capital both provide us with opportunities and pose risks. Unlike gambling – where the probabilities are often known – the risks posed in the economic realm are often unknown. In fact, the costs of those risks are unevenly spread among the members of society: at any point in time, some of us are greater risk than others, just as some have a greater opportunity to benefit from current resources or technology than others.

Theme 2: Disbursed Knowledge

The knowledge of the world doesn’t reside on a computer hard drive somewhere. It resides in the minds of human beings, who share a lot of knowledge, but also individually know things that others don’t. The dispersion of knowledge is particularly true of practical knowledge – the knowledge of how to do a particular thing in a particular place. When Biggby Bob says that entrepreneurs know things that help them to be confident about their success, he is talking about this disbursed knowledge. The entrepreneur sees the opportunity because of their particular vantage point, which includes their general and particular knowledge.

Note: Disbursed knowledge is one of the reasons why simply increasing the number of highly educated people (even in the sciences and engineering!) doesn’t translate obviously into innovation and entrepreneurship. A recent Kaufman Foundation report says it well: while the general level of knowledge that entrepreneurs need continues to grow, they are no more likely to have higher degrees than anyone else.

Theme 3: Opportunity Taking and Making

Does the entrepreneur take an opportunity that others don’t see, or do they make the opportunity? Both are possible, of course, but I’m inclined to see entrepreneurship in terms of opportunity-making. Opportunities don’t sit around like $20 bills on a sidewalk. The hard work of entrepreneurship is figuring out what the opportunity really is, and making it happen. This does not make the entrepreneur a shyster or gambler. Their particular knowledge and personal outlook on life poses a question to them: is X possible? Sometimes X doesn’t even turn out to be the thing that adds value; remember the entrepreneurial code: fail fast, learn your lessons, and move on. But pursuing X leads them either create a better X, or to figure out that what was really needed was Y.

Putting all three themes back together, we can say that the entrepreneur figures out how to be at the place where an opportunity can be created to add value that others appreciate.

What we cannot say, however, because we don’t really know, is whether the entrepreneur’s actions will increase or decrease our society’s exposure to the uncertainties of life. Even if an innovation reduces some risk, it may create new ones we didn’t know about before.

Bob Fish on TEDx Lansing

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Love & Justice

Thursday, February 4th, 2010

Including a Few Remarks about Innovation

Prepared for the Forum on the Moral Case for Capitalism, James Madison College, January 28, 2010

Over the past year, I have returned several times to two very different sources of inspiration for my thinking about economics, innovation and society. Both sources will probably surprise those of you who have had me in class: i) Michael Moore’s movies; and ii) the two recent encyclicals by Pope Benedict.

I’ll confess that I’ve always enjoyed Michael Moore’s movies. By now, they’re predictable, of course, and he re-uses the same tricks each time, but I fall for them, and laugh at his shenanigans. His sense of fairness and his view of the world are similar to those of a lot of people I know, and I share some of his values. He sees himself as a spokesperson for the average Joe, and he admires the “kinder, gentler” nation to the north of us, which was my home for almost half my life. He tells us he loved the social contract he calls capitalism: a world in which Michigan’s large corporations looked out for their workers, the workers looked out for the companies they worked for, and the government provided the things that the employers and workers couldn’t provide for themselves. He is morally indignant that corporations and politicians actually put their own interests first, seeing it as a massive betrayal of capitalism’s social contract, and of the virtues of ordinary people. Despite his admiration for the system, he is led to the conclusion voiced by the Catholic priest from here in Lansing whom he films saying: capitalism is evil.

Moore’s movies always leave me with a paradox: if capitalism is evil, and his gloom and doom sentiments about world that capitalism created are true, I can’t help wondering why he pines for a mythical world in which his version of capitalism flourished (say, Flint in 1957). And if his gloom and doom sentiments about the world aren’t true (not all of the world is Flint, after all), well, then maybe capitalism is something other than what he thinks it is. My own view of morality and capitalism has taken me down the second side of this paradox.

Which brings me to the Pope’s encyclicals. I’m not Roman Catholic, but have long found the encyclicals well worth reading. Especially the ones by Pope Benedict, whose writings display both his careful scholarship and his appreciation for the ordinary lives of real people. What Benedict has done in his first two encyclicals is to take the entire history of papal social teaching and encompass it within the simple expression: God is love. In doing so, he has succeeded not only in a brilliant philosophical endeavor, but he has also re-invigorated Christianity’s engagement, both intellectually and practically, with the secular modern world.

Now love is something that economists are not comfortable talking about. Discussions of capitalism usually focus on efficiency and productivity arguments: the closest most economists get to the topic of love is talking about the economics of sex and marriage. Even Adam Smith, who as the first economist was also the last to integrate ‘benevolence’ as well as ‘self-love’ into his economic thought, downplayed love. Benevolence, after all, is not quite the same as “charity”: the former reflects my willingness to take the interests of others into account in choosing my actions; the latter asks of me to give of my own to others.

Discussion of benevolence takes us quickly into the topic of justice: giving each of us our due, acknowledging our rights. Discussion of love transcends, and possibly completes, justice: As Benedict says, “The earthly city is promoted not merely by relationships of rights and duties, but to an even greater and more fundamental extent by relationships of gratuitousness, mercy and communion” (Caritas in veritate)

Well, what does this discussion of love and justice have to do with capitalism? I want to draw out two implications for your consideration today.

First, it is ironic that a capitalist society – with its priority on freedom, a value I haven’t mentioned, rather than justice – provides the potential to transcend justice; whereas non-capitalist societies, whether they be mercantilist – give us our due – or socialist – give everyone their due, do not. I was struck long ago by the realization that the first requirement of a socialist society is the denial of charity: a socialist society is undone if people voluntarily choose to give up what society gives them (“from each according to their ability, to each according to their need,” doesn’t work if I voluntarily give away what society gives me to meet my needs). This is one of the reasons that voluntary associations are so uncommon in non-capitalist societies: voluntary associations are one of the ways in which we transcend the requirements of justice, giving freely of what is rightfully ours as an expression of charity and love.

My second point has to do with innovation. As some of you know, I have been working for a couple of years now on a project I call “The Constitution of Innovation.” We know that innovation is the fundamental driver of long-term economic growth, but economics is ill-suited to provide us guidance on how to encourage innovation. For the economist, innovation is almost “an act of God” – something we cannot predict or control that intrudes on our smoothly functioning system and disrupts it. Joseph Schumpeter’s description of innovative entrepreneurship as “creative destruction” gives you a good sense of what economists think of it.

As with charity, non-capitalist societies are particularly bad at enabling innovation. We often say that this is because they do not respect property rights, and there is some truth in that, but my own argument runs deeper: innovation is an act of love.

Think about it for a second: if you develop something new just for yourself, it isn’t an innovation, it has no social consequence. New creations are only innovations if they create value for other people. As I define it, innovation is the process of creating value for others; put in the terms I’m using here, it is a gift of yourself for the sake of others as well as yourself. The value created by your innovation will far exceed the value you receive from its entrance into the market. Of course, market societies ensure that the value you receive will be in some way proportionate to the value you create for others. But that’s the unintended consequence of my action: not what I set out to do, which was to create value for others. Just as capitalism provides the potential for charity because it doesn’t primarily aim at justice, so too it provides the potential for innovation because it doesn’t settle with simply ensuring that we continue to do what we are currently doing.

My comments here aren’t intended to outline a moral theory that justifies capitalism. My goal is simply to get you to think about some additional consequences of the moral foundation Jim Otteson outlined: we want a society which enables your freedom and independence, and which holds you accountable for the consequences of your action. His talk identified what accountability does for ensuring you take responsibility; mine identifies what denying you responsibility may prevent. We need both sides to appreciate the moral case for capitalism.

Links

1. My review of Moore’s Sicko

2. Pope Benedict’s encyclicals: Deus Caritas est and Caritas in veritate

    First released on lovebabelmammon.wordpress.com.

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