Frank Knight's ‘categories’ and the definition of economics

Abstract

In an attempt to combat the positivist view that the only legitimate way to conduct social science is in the manner of a natural science, Knight distinguished between positivist and non-positivist categories or levels of interpretation of human-social subject matter. Since each of the categories contained ‘a large element of truth’, Knight argued that any serious analysis would need to embrace a pluralist approach. In this paper I draw on four separate accounts he gave (in 1934, 1940, 1941, and 1942) of these categories in order to arrive at a more complete statement. This fuller description will hopefully promote a deeper appreciation of Knight's emphasis on the need for adopting a pluralist approach to the subject matter of economics. I then apply the perspective of the categories to shed light on Knight's definition of economics and his criticism of Robbins' definition.

Keywords::

• Frank Knight
• positivism
• pluralism
• definition of economics
• Robbins
• liberalism

Jel Classification::

• B20
• B40
• B41

Acknowledgements

An earlier version of this paper was presented at the annual meeting of the History of Economics Society, Brock University, St Catherines, Ontario, Canada, 22–25 June 2012. I thank Christopher Torr, Victoria Chick, Derek Wang, Dan Hammond and two anonymous referees for helpful comments and suggestions.

Notes

^1. ‘Discussion is a co-operative quest of an impersonally, “objectively” right (or best) solution of an impersonal problem’ (Knight, 1933b, p. xxxv).

^2. Here Fiorito (2009, p. 476) cites a letter (9 September 1925) from Knight to Viner.

^3. According to Emmett (2006b, p. 117), in one of Knight's (1930) first articles after returning from Germany titled ‘Statics and Dynamics’ he argued that ‘neoclassical economics was severely limited as a social science because the mechanical analogy’ failed to deal with ‘the most important changes in economic life’, namely changes in means and ends.

^4. Here Asso and Fiorito (2008, p. 72) cite a letter (17 February 1934) from Knight to Robbins.

^5. It is not always clear whether Knight is talking about materialism as a metaphysical doctrine or as a doctrine contrasted to values, idealism and the pursuit of ideals. Here it seems the latter.

^6. ‘On every count this [purely] biological interpretation of human conduct falls down’ (Knight, 1922, p. 27).

^7. ‘Such a view of society comes into our scheme, if at all, only in the sense of the sixth heading, “societalism”’ (Knight, 1934a, p. 328 n).

^8. Here Knight's sentiment appears to be in accord with that of Davis (2009, p. 263): ‘When we substitute the conception of the individual as socially embedded for the conception of the individual as atomistic, we are still pre-eminently concerned with individuals, though individuals are then understood in terms of their social characteristics as well as their personal ones.’

^9. In a footnote at this point Knight mentions that ‘an individual may be said to start or found an institution. But it is the social process of acceptance which makes it an institution in our sense.’

^10. Knight (1941, p. 125) describes category (d) in general terms as dealing with a ‘consciously deliberative purposive individual’ but does not distinguish between instrumental purposiveness (economic behaviour) – Category 4 – and purposiveness concerning evaluation of the end – Category 5.

^11. Knight (1922, p. 35) explains the meaning of the economic man ‘mistreated by both friends and foe’. Machlup (1978, pp. 267–301) explains ‘economic man’ as the metaphoric or figurative expression for a proposition used as a premise in economic theory’ (p. 297). More recently, this ‘universal bogey’ has been admitted into respectable company as the ‘objective function’, a name ‘by which his enemies would not recognize him’ (Machlup, 1978, p. 283).

^12. See Knight (1933b, p. xiv). ‘Marginal analysis of the firm should not be understood to imply anything but subjective estimates, guesses and hunches’ (Machlup, 1946, p. 522). The firm ‘is only a theoretical link, a mental construct … to confuse the firm as a theoretical construct with the firm as an empirical concept … is to commit the “fallacy of misplaced concreteness”’ (Machlup, 1967, p. 9).

^13. Knight notes here that anyone who does not like the terms of the free market is ‘free to adopt any other terms on which they can agree as better’.

^14. In a footnote at this stage, Knight points out that ‘rigorously speaking, the theory is restricted to stating conditions of equilibrium; it could never determine the path of movement toward that state from any other’.

^15. Knight notes the historical transformation of such ‘enterprise economy’ societies from individual to corporate enterprise.

^16. This fifth category refers to Knight's (1940, p. 27) third category of problem-solving action (evaluation of the end) and to Knight's (1942, p. 287) category (e), i.e. ‘deliberation about ends’. As mentioned in dealing with Category 4, Knight's (1941, p. 125) classification (d) does not distinguish between purposive behaviour regarding the means and that regarding the ends. Knight (1934a, p. 327) does not list a category explicitly concerned with evaluation of ends, although this might be subsumed under the fourth category he mentions, namely ‘the abstract motivational’.

^17. This sixth category refers to Knight's (1941, p. 125) category (e); to Knight's (1942, p. 287) category (f) – where both concern ‘man’ as a social being; to Knight's (1934a, p. 327) sixth category which he labels ‘groupism’ or ‘societalism’ and to Knight's (1940, p. 27) second category of problem-solving action ‘in which the motive is abstract or social’.

^18. See Emmett (2006a). ‘But it is also most false to assert that one opinion is as good as another, that de gustibus non disputandum est’ (Knight, 1922, p. 40).

^19. Given that the atomistic conception of the individual in economics narrows the scope of normative evaluation, Davis (2009, p. 265) argues ‘that any serious engagement of economics with ethics depends on broadening the conception of the individual’.

^20. ‘All discourse, including social science, is a social phenomenon’ (Knight, 1934a, p. 338 n).

^21. Knight (1934a, pp. 332 n, 338 n) acknowledges problems surrounding this concept.

^22. ‘The irreducibly social residuum … must be recognized as having the same general properties, powers or “faculties” as an individual mind’ (Knight, 1934a, p. 332 n†).

^23. According to Emmett, Knight argues that, for Hayek, institutions (such as the law) evolve by spontaneous order rather than rational design. Knight criticizes such a view since it implies they evolve without social discussion. ‘Once liberalism emerged, cultural evolution (or, simply, history) became the process of humans making – not only breaking – law’ (Emmett, 2007, p. 76).

^24. Here Knight means ‘rational’ in the sense of planned, i.e. purposeful activity, conduct, rather than ‘epistemological rationalism’ (1934a, p. 322 n).

^25. Knight refers to ‘Robbins' limited, mechanical conception of economic science’ (1934b, p. 225).

^26. According to Backhouse and Medema (2009a, p. 806), Robbins ‘was influenced very strongly by, among others, Ludwig von Mises and Philip Wicksteed’.

^27. ‘The organization as a whole has no value in itself or purpose of its own… but exists solely to promote the interests of its members’ (Knight, 1933a, pp. 25–26). After citing this statement, Buchanan (1987, p. 65) argues that it ‘cannot be reconciled’ with Knight's (1933a, p. 10) view that the first function in the social organization of economic activity is ‘establishing a social scale of values, or the function of social choice’. Buchanan rejects any ethical implication of the concept of ‘social value’ as embracing a non-individualistic value scale. ‘“Social value” as such carries no ethical weight. A system must be ethically judged, if at all, exclusively in terms of its ability to allow individuals to further their own values, whatever these may be’ (Buchanan, 1987, p. 73).

^28. Here Knight seems to be referring to Robbins' (1935, p. 148) view that economics is an objective, value-free science: it deals with facts, ethics with valuations – a logical gulf divides positive from normative studies. For Colander (2009), Robbins is here referring only to the small field of economic science, not to the bigger and more important field of political economy.

^29. Concerning Robbins' confusion regarding ‘economic’ ends, Knight had earlier argued that ‘the idea of a distinction between economic wants and other wants must be abandoned’ (1922, p. 33).

^30. Blaug (1980, p. 148) bemoans the ‘immense confusion [that] has been sown by the pretense that we can pronounce “scientifically” on matters of “efficiency” without committing ourselves to any value judgments’.

^31. For Knight, given ends are defined by ‘actual preferences on the part of the subject as an economic man as he stands at the moment of making any choice involving the disposal of means’ (1941, p. 127).

^32. ‘As to practical use of the results, that depends of course on having the conditions under which the principles apply, and the limits of their application to reality, clear beyond misapprehension’ (Knight, 1934b, p. 229).

^33. Knight (1923, p. 71) contrasts the ‘ethics of scientific naturalism’ or psychological hedonism with ethical hedonism in which happiness depends upon cooperation and affection for others rather than on getting ahead of them.