Saturday, May 05, 2012

Frank Knight's Economic Organization

I wouldn't say that Frank Knight's Economic Organization is his most important  work, or his most interesting.  Those accolades would apply to Risk, Uncertainty and Profit (most important) and The Ethics of Competition (most interesting).  But EO is fascinating both in its context and history and as also as an exemplar of Knight at his best--his parsimony, his precision, his fair-mindedness and his flat-footed Midwestern elegance.  In respects like this, I'd place him squarely in the tradition of British Clear Thinkers, along with Mill and Hume (I might throw in Schopenhauer, if I thought I could persuade you he was really British).   So, EO a keeper in my stack of short books not to be thrown away.

There are actually three parts to the backstory (all summarized in an admirable "genealogy" posted at SSRN by one Ross B. Emmett).   One is the semi-official version of Knight in samizdat--how his paper became a favorite of economics professors, the kind of thing you hide in your top drawer to reread before you face the students.  Two is the remarkable account of the paper and Knight himself--how it was first published and copyrighted without his knowledge and, as it appears, against his will (are there any other cases of involuntary copyright?)--pretty good evidence, if we needed any, of Knight's utter lack of personal vanity (and perhaps also, of a streak of orneriness).

Third and perhaps most intriguing is the relationship between two discontinuous parts of the essay--the first chapter (called "Social Economic Organization") in which Knight lays out a sketch of the nature and purpose of economics; and the remaining chapters in which he undertakes to lay out the ways in which an economy does its work.   Focusing on the first chapter naturally raises the question of how this paper relates to other papers (notably "Ethics of Competition") in which Knight offers so trenchant a critique of the market mechanism.  The short answer is that Knight rather pulls his punches; other papers are more challenging (a longer answer would be more complicated; see Emmett, supra).  But even in the restrained version, you can find stuff like this:
Social costs of Specialization. All the gains from specialization are summed up  in the one word, efficiency; it enables us to get more goods, or better; its advantages are instrumental. On the other hand, specialization in itself, is an evil, measured by generally accepted human ideals.   It gives us more products, but in its effects on human beings as such it is certainly bad in some respects and in others questionable.  In the nature of the case it means a narrowing of the personality; we like o see people of all-around, well-developed powers and capacities.  In extreme instances, such as the monotonous work of machine tending, or repetitive movements at a machine-forced pace, it may be ruinous to health and maddening to the spirit. In this connection it is especially significant that the most important source of gain also involves the most important human cost.  The specialization of leadership means that the masses of the people work under conditions which tend to suppress initiative and independence, to develop servility as well as narrowness and in general to dehumanize them.
From the spiritual progenitor of fresh-water economics, these are strong words indeed.

1 comment:

Jimbo said...

Did not know about Knight but he seems to be a genuine humanist economist. Ironically, the freshwater school of economics seems to be, nowadays, the lesser accommodating of a humanist perspective and more towards the market is perfectly rational perspective.