Ross Emmett

Posts Tagged ‘Frank Knight’

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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Cities and Innovation

Wednesday, May 18th, 2011

I’ve been reading Edward Glaeser’s Triumph of the City (Penguin, 2011): an excellent read and quite accessible for general audiences.

Glaeser makes three claims I’d like to discuss. The first is in his subtitle: the city is “our greatest invention.” The second is that cities are central to human flourishing; and the third, which he tells us lies behind both of the first two claims, is that “ideas spread easily in dense environments” (ironically, this core claim only appears in Glaeser’s acknowledgements, so those interested in the thinking behind his book may miss it!).

I disagree with Glaeser’s first claim, and largely agree with the other two, although the nature of my disagreement with the first claim will modify both of the other claims. Let me explain.

Humanity’s greatest invention is language. Glaeser may, of course, simply respond by saying that language is natural to humans, while he is concerned with that which is human-created. But it is that natural-artificial divide that led Rousseau to identify cities as “the abyss of the human species” (a quote Glaeser uses) because they are artificial, and also to argue that language must have begun as an expression of human emotion (a raw, natural act, like a song from a song-bird) rather than as product of human rationality. Clearly, Glaeser doesn’t want to join Rousseau, so perhaps he’ll have to agree with me. In any case, his discussions of place and the evolution of cities sound a lot like discussions of the evolution of language and of its diversity across the human race.

Without language, humans would be reduced to managing the various relationships of existence via reciprocity—the highest form of social collaboration commonly found among other animals. Reciprocal relationships—I’ll scratch your back if you scratch mine—can be quite complex, but because they involve exchanging A for A, cannot take us far toward either exchanging complex ideas or creating “dense environments.” Cities, certainly, don’t appear from reciprocity. For that, we’d need to take relationships beyond reciprocity; and language is the key to the “beyond.” And since both Glaeser and I are economists, I can add that reciprocity is different than economic exchange—trading A for X (getting into why trade is not reciprocity would take us too far away from our topic, but I can illustrate the issues by merely pointing out that X need not only be a different good than A, it may not even be a good, and it may not be in the same place, or at the same time). Trade, as Adam Smith realized long ago, is deeply connected to language and both are fundamental to making humanity, as Robert Malthus once said, “a peculiar animal.” In short, no language or trade, no cities.

The fact that Glaeser takes language for granted is signaled by his third claim: dense environments promote the spread of ideas. He might as well say, lots of talk promotes the spread of ideas. Density is only possible because humans can talk, and greater density enables even more talk. As long as we assume that ideas spread via talk, then density facilitates the spread of ideas.

It was this argument that led me to pick up Glaeser’s book in the first place. I thought he could help me understand better how cities function as “hubs,” “hotspots,” or “incubators” for innovation. And he does: he makes a persuasive case that because cities create a dense network, good ideas for all kinds of things that add value to our lives are more likely to appear and have a chance to succeed. This is how cities make us, as his sub-title says, “richer, smarter, greener, healthier, and happier.”

But as I read, I realized that Glaeser never really explains how “density” converts more ideas into good ideas that add value. After all, a dense human environment is as conducive to cheap talk as it is to good talk. And Frank Knight’s first law of talk may apply: “Talk is cheap and it drives out talk that is less cheap.” Flattery, sophistry, cajolery, publicity, huckstering, lobbying, deception, and the like are often associated with city life. Welcome to the Emerald City!

Glaeser never really addresses the problem of cheap talk. Instead, his analysis of cities implies that density, and the diversity of ideas it provides, serves a winnowing function for ideas: lots of ideas are tried out, those that succeed survive. Perhaps this is a heritage of his Chicago School training: markets always produce improvements, as long as we understand improvement to mean better satisfaction of what it is that people want. And I’m sympathetic to that argument.
But what if we want to improve the means by which people voluntarily find new and better wants? Isn’t that part of the reason we create cities? Can I be confident that increasing the density of cities will necessarily improve the quality of our social interactions? I have come to the point where I expect it will, but not only from market interactions. I don’t see in Glaeser a reason for me to be confident in my expectation. For this, we’re probably better off turning to Elinor Ostrom and Deirdre McCloskey. They at least have arguments for how talk, and especially cheap talk, plays a role in improving the outcomes of centrally uncoordinated human action. Ostrom’s Nobel lecture provides the basics of her argument; McCloskey’s “Bourgeois Era” series is building her case. Both contradict Knight, although perhaps in different ways.

For my own purposes, consideration of the importance of talk to innovation helps us understand why certain institutional features of a society – its appreciation for freedom of expression and association, its willingness to design around human action rather than direct action through design, etc. – as well non-institutional features, such as a society’s norms and common morality, play such an important role in making some societies innovative, and others not. More on that topic to come!

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Hayek, Chicago, Friedman, Knight

Monday, May 9th, 2011

Posted to the SHOE (Societies for the History of Economics) email list earlier today:

Sergio Noto’s note somewhat overstates the case for Knight’s favor toward Hayek. I’ll use the occasion to respond to it as a chance to also comment on Hayek’s appointment.

1) It is not strictly true that Chicago’s department of economics rejected Hayek. Or, to put it differently, the department never had an “up-down” vote on him. As far as I have seen in the Departmental Records, Hayek never made it onto the list of economists the department would consider for hires (this was generated internally by T.W. Schultz with rankings by the departmental members). So the department did not “reject” him.

2) Of course, this simply shifts the question to: why was he never included on the list? But the answer there seems obvious: before the post-war period, Chicago generally hired Americans, or people who had a connection to the department. Indeed, between 1946 and 1952, they lost R. Blough, P. Douglas, S. Leland, and H.C. Simons (the only non-American to leave was O. Lange). These were replaced with M. Friedman, E.J. Hamilton, L.A. Metzler, and M. Reid. Metzler, of course, was a Keynesian; Friedman a former student; Reid through her Iowa State connection to Schultz; and Hamilton through Nef and Knight.

3) Did Knight work for or against Hayek? Sergio notes their respect for each other, which did exist. But David Mitch’s story (in his essay “Chicago and economic history” in the Elgar Companion to the Chicago School) about Knight’s help in hiring Hamilton is potentially telling in regard to the hiring of Hayek. Chicago considered hiring another economic historian twice in the 1940s; both times Harold Innis and Earl Hamilton were ranked highest by the faculty. Nef preferred Innis, whose vision of economic history was broad. Knight preferred Hamilton, who “grounded his work in perspectives from economic theory” (Mitch, p. 115). Knight won, and Hamilton was hired. What the choice of Hamilton suggests is that Knight encouraged the department to seek economists, narrowly defined, rather than those with a broader vision of economics and society. The choice was ironic in two senses: a) Knight himself had never been an economist, narrowly defined (although he did define economics narrowly), and b) Hamilton became the object of criticism from Friedman students later for his wage-gap theory of inflationary adjustment during the time of Spanish treasure. Knight would, in this accounting, not support a Hayek hire in the department.

4) But Knight did support, and assist with, the hiring of Hayek in the Committee on Social Thought (see my paper on CST). In fact, given Knight’s own role in the Committee, it seemed the obvious place for someone with economics training and broad philosophical interests. The workshop system emerging in the department during the 1950s — aimed at creating applied policy economists through rigorous scientific training of graduate students and faculty — would have been inappropriate for someone like Hayek (Hamilton, actually, ended up with the same problem — it wasn’t until Fogel replaced him that the economic history workshop took off). And the College, which taught the undergraduate students, would not have been appropriate for someone of Hayek’s scholarly interests. Hayek needed access to a scholarly community including graduate students. The Committee, which came into existence in the mid-1940s, was a perfect fit. Indeed, in the same year Hayek joined the Committee, Leo Strauss was hired in Political Science (a very eclectic department at that point which couldn’t decide what it wanted to do), with a cross appointment in the Committee. Hayek and Strauss played important roles in shaping what the Committee became over the next 20 years.

5) And, yet, there is more to the Hayek-Knight relationship to mention. Late in life, in an interview with Jim Buchanan, Hayek muses on his relationship with Knight and wonders why Knight never seemed to reciprocate Hayek’s respect and friendliness toward him. I have argued the roots of the matter go back to the capital debate, not in its theoretical aspects, but in the fact that, just as Hayek and Knight came to seeming agreement on capital (in their correspondence in the early 1930s), Hayek turned around and published an article which dismissed their discussion in favor of a “systematic exposition” of a position that did not account for what they were agreeing upon in the letters. I have quoted Knight’s response in my online essay on Knight’s capital theory — see the quote at the beginning of the page. See also my essay on Knight and Hayek in the newly released Hayek, Mill and the Liberal Tradition (ed. by Andrew Farrant).

If you combine Knight’s response to Hayek in 1934; his comments about The Road to Serfdom that now appears in the definitive edition edited by Bruce Caldwell (a representative quote is here); and his criticism of Hayek’s The Constitution of Liberty (JPE, 1967; also the title essay in vol. 2 of my FHK collection), you see that Knight did not hold Hayek in the same high esteem that Hayek did Knight. In the latter item, he uses words like “pretentiousness,” “anarchistic,” “notably absurd,” supremely “absurd,” and a “flagrant example of false generalizing.” Oh, and later in the essay “Hayek reaches the peak of fallacy.” David Levy tells the story of Knight walking out of a Hayek lecture at about this same time (Knight was sitting in the middle of one of the front rows, so his departure was obvious to everyone!).

A complex relationship which needs a complex story to tell it.

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