Frank H. Knight

Some Fallacies in the Interpretation of Social Cost

Arguments for social interference developed by Pigou and Graham illustrate common misinterpretations of the meaning of cost and its variation with output, 582. — I. The private owner of a natural opportunity secures maximum return from it by charging that rent which halts the application of investment at the point which is socially most advantageous, 584. — II. The notion of decreasing cost is a fallacy; competitive price fixation under decreasing cost or increasing returns an impossible situation, 592. — III. The law of comparative advantage in international trade is fundamentally sound, 599. — Importation a method of using resources to produce the imported good, and will be employed under competitive conditions only when more efficient than a direct method, 603. — The competitive system has important defects, but they lie outside the mechanical theory of exchange relations, 605.

Profit and Entrepreneurial Functions

Provides a theoretical basis for understanding profit in relation to the entrepreneur. Profit is defined as the residual income accruing to the owner of a business or enterprise. This owner, whether an individual or a group - such as in the case of the corporation - is the entrepreneur, or the responsible controller of the business. The entrepreneurs right to pure profit is justified through the functions of the entrepreneur, which include economic pioneering through innovation, problem-solving, market adaptation, and risk-bearing. Though this establishes the theoretical basis for understanding entrepreneurial profit, further classification systems need to be conceptualized that clearly differentiate entrepreneurs from managers, inventors, and creative scientists. Further, it is the historians job to study specific cases of entrepreneurs, since the generalizations inherent in theories cannot take into account a number of factors, including personality, environment, and cultural context. (CJC)

Ethics and the Economic Interpretation

Bearing on problem of scope and method, 454. — Both economics and ethics deal with value, 454. — Economics as a pure science has given too little attention to separation of constants from variables, 455. — Sense in which wants can be considered as data, 455. — Economic interpretation as a theory of conduct, 459. — Are human motives predominantly economic, 460. — Are they predominantly instinctive, 466. The adaptation theory, 469. — The pleasure theory, 469. — Economics as a study of the adaptation of means to ends, 472. — What becomes of ethics, 476. — Three kinds of treatment of conduct, 481.

Freedom and reform : essays in economics and social philosophy

The fifteen essays in this collection, first published in 1947, treat a variety of economic, social, political and philosophical problems and were written by a legendary professor of economics at the University of Chicago.

Economic Psychology and the Value Problem

The basic difficulty in economic theory is the philosophical problem of the meaning of explanation in connection with human behavior. I. Motive or desire in human conduct is the analogue of force in mechanics, 375. II. Is force real or merely symbolic, leaving movement (behavior in the case of human beings) the only fact open to description or study? 379. — This question is merely formal in physics, for we know forces by their effects alone, and hence unambiguously if at all; but in the realm of conduct, we know motives in ourselves directly and in others by communication, in addition to inferring them from observed behavior, and the two sources of information disagree considerably. III–IV. The intellectually embarrassing but unescapable fact of purposiveness, in thought as well as conduct, 386. — V. The place of motives and their treatment in economics, which has to be critical as well as descriptive and logical, — a branch of esthetics and ethics as well as of science, 400. — VI. The objective of economic activity and the point of view of social criticism of the economic order, 406.

Abstract Economics as Absolute Ethics

ECONOMICS AS ABSOLUTE ETHICS

Socialism: The Nature of the Problem

T THE discussion of socialism affords an opportunity to kill two birds, or indeed several, with one stone. Apart from the importance of the subject in itself, socialism and prevalent thinking about it present an especially interesting case study in the nature of social problems and social thinking, and hence in the methodology of a social science relevant to social action. The writer, at least, is more interested in the character of economic and political thinking as illustrated by the discussion of socialism than in socialistic schemes or even the general concept; for the nature of most of the thinking about the problem seems to be the most important datum in connection with the problem itself. The present sketch, written from the standpoint of economic theory, will attempt no more than a partial analytical indication of the character of the problems and the methods of attack. Its content will lie entirely within the field of the obvious, not to say the trite.

The Meaning of Democracy: Its Politico-Economic Structure and Ideals

The prospect of saying anything about democracy, at this date in history and in the compass of a short essay, which will contain at once enough truth and enough novelty to be of value, seems to the writer to be small, and the attempt rather presumptuous. This article will merely attempt to present some notes on basic principles, which may possibly help thoughtful readers to clarify the nature of the ideal, and may shed some light on the problems which threaten the existence of democracy in this day of crisis.

LITTLE, I. M. D. A Critique of Welfare Economics. Pp. 276. Oxford: Claren don Press (distributed in U. S. by Ox ford University Press), 1950.

ways had a scheme. His mental energy and resources were limitless. If a thing could not be done in this way, it could be done in that.&dquo; &dquo;That was his experience in his private life and in the affairs of his college, and the same maxim should be applied in public affairs&dquo; (p. 192). To his dismay and amazement, Keynes discovered more and more frequently that once he had persuaded people to adopt a certain policy (which does not exclude the possibility that they might have done what he told them they ought to do even without his preaching),, it was difficult or impossible to dissuade them when he thought that the situation had changed and a different policy was required. To give but

3.50:

The third part of the book, &dquo;Capitalistic Production in a Competitive Community,&dquo; has as its main topics, first, the effects of capital accumulation on prices and output and the adjustment of the structure of capital to foreseen and unforeseen changes, and second, the redefinition of saving and investment. In the latter respect, some comments are in order. The so-called discounting principle (according to which present net worth is evaluated by discounting gross returns expected) has as corollary an income concept, according to which the expected net income from the asset is equal to the interest on the present net worth. This income concept is the only one accepted as both logical and realistic by Hayek; in his terminology saving means nonconsumption of this income, with the consequence that an increase of the physical stock of capital (computed according to the customary accounting principles) can be financed from other sources than savings. This income concept and likewise the savings concept implied are at variance with these customary methods of profit and income computation, which apply the cost idea. It is impossible, therefore, to base an explanation of the actual phenomena of business life on Hayek’s concept. He is, however, inclined to do so, because, on the basis of this income concept, his older theory seemingly finds justification that an increase in investment financed by &dquo;voluntary&dquo; saving has consequences different from the consequences of investment financed by monetary expansion ; in the latter but not in the former case, so runs his argument, the income receivers would insist, sooner or later, on restoring the old relation between the present income flow and the future income flow and would therefore bring about a decumulation of the capital stock accumulated through monetary expansion. At this point, the degree of abstractness which is implied by the Austrian conceptual apparatus proves disastrous for Hayek’s theory. To counter his argument by a simple illustration: If a