Frank H. Knight on social values in economic consumption: an archival note

Abstract

We reproduce an unpublished address on “Social Values in Economic Consumption” which Knight prepared for a SSRC Conference in June 1931. This material sheds new light on Knight in two respects. First, anticipating what is known as the relative income hypothesis, Knight indicated that a general increase in income, not only leaves the individual’s relative position in society unaltered but makes her/his situation worse off due to the peculiar characteristics of the market for “personal services.” Second, this address provides further evidence of how, in spite of some substantial methodological differences, Knight’s research interests converged with those of the institutionalists.

Keywords:

• Frank H. Knight
• consumption
• relative income
• institutionalism

JEL CODES:

• B25
• D31

Acknowledgements

We thank Ross E. Emmett, Nicola Giocoli, Ugo Pagano, Malcolm Rutherford, and two anonymous referees for their constructive comments on the first version of this paper. We thank also the staff of Special Collections Research Centre at the University of Chicago Library for much friendly cooperation during our research. Usual disclaimer applies.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 Knight gives us an amusing example of his typical deliberately provocative style in a 1940 letter he sent to Joseph Dorfman, Veblen’s biographer and renown institutionalist: “I would really like to know what standing Veblen has or had, if any, in the field of Archaeology, which is the foundation of his whole position. I have never happened to know of any recognized archaeologist recognizing Veblen’s existence. If I am grossly uninformed in that connection, I do wish you would give me references which would enable me to get right. Another question which is, of course, impertinent to ask, but about which I was even more puzzled, was whether your statement about Veblen’s standing among ‘the economists who count’ was meant seriously, or was intended to be funny.” Frank H. Knight to Joseph Dorfman, 18 December 1940; quoted in Asso and Fiorito (2013, 63).

2 Frank H. Knight to Wesley C. Mitchell, 18 May 1923; quoted in Fiorito (2000, 290).

3 Frank H. Knight to Morris A. Copeland, 25 January 1927: quoted in Asso and Fiorito (2003, 79).

4 According to Albert B. Wolfe (1936, 192), the term “institutional economics” was invented “probably by Max Handman in a conversation with Thorstein Veblen, about 1916.” At that time the two men were colleagues at Missouri (Rutherford 2011, 15).

5 The committee on Consumption and Leisure was one of the several SSRC advisory committees on Problems and Policy established for the biennium 1931–1932. The other committees were devoted to the following fields: crime, the family, personality and culture, population review, pressure groups and propaganda, public administration, the seminar in culture and personality, social and economic research in agriculture, and social statistics.

6 Unfortunately, our archival search, both at Knight papers at the University of Chicago and at the SSRC Papers at the Rockefeller Archive Center, did not allow us to trace any other contribution to the round table. Furthermore, only Zimmerman appears to have published a specific contribution on consumption shortly after the SSRC conference but the study, an empirical discussion of Engel’s law (Zimmerman 1932), was related to the activities of Harvard Committee on Research in the Social Sciences.

7 Frank H. Knight to Max S. Handman: 22 April 1931. Frank H. Knight Papers: box 4, folder 3. Special Collections Research Center, University of Chicago Library.

8 A somewhat rigorous exposition, based on utility analysis, of the zero-sum nature of status competition had been proposed by the economist George P. Watkins in 1915 (Fiorito and Vatiero 2018). Watkins’ discussion caught Knight’s attention (1923, 593 n5) who commented: “Many of the ‘higher’ wants are keenly satirized in Veblen's Theory of the Leisure Class. A sober discussion of the problems involved, of much greater scientific significance, is found in the later chapters of G. P. Watkins's volume on Welfare as an Economic Quantity [1915].” A further analysis of economy as a zero-sum game is in Robert Lee Hale’s contributions (Vatiero 2013).

9 Frank H. Knight to Max S. Handman: 22 April 1931. Frank H. Knight Papers: box 4, folder3. Special Collections Research Center, University of Chicago Library.

10 A possible (long-term) explanation could be that since the increased wages provide the means for many of the individuals supplying personal services to shift toward more agreeable occupations, the new entries are less skilled and hence less efficient.

11 Willystine Goodsell was professor of history and philosophy at Teachers College, Columbia University. In 1928, a group called the National Council on Household Employment had brought together social scientists, labor activists, efficiency experts, and even future First Lady Eleanor Roosevelt to try to solve the so-called “servant problem.” See Dudden (1986) for a discussion.

12 Knight made this point crystal clear alter in his life: “Hence these ‘limitations' constitute no objection to traditional economic theory, either as science or in relation to practice – provided only they are understood, and its part in the whole project of education and of social management is understood, and is combined with the results of other disciplines whenever this is needful for handling the problem, scientific or practical, that is under consideration” (Knight 1950, 122).

13 Kyrk’s Theory of Consumption (1923), a then much acclaimed institutionalist contribution, did not escape Knight’s critical attention. In his unpublished notes on Kyrk, Knight found her reliance on Dewey’s instrumentalism “too narrow, even self-contradictory.” To Kyrk’s eyes, Knight explained, the origin of value lies in its contribution to human adjustment and survival. This, he insisted, “is in line with Dewey’s narrow ‘biological’ pragmatism.” But how then can Kyrk justify her assertion that moral and aesthetic values “have a way of appearing as categorical absolutes and as independent values, good for nothing but good in end of themselves [Kyrk 1923, 159]”? Reconciliation under the umbrella of instrumentalism, Knight concluded, “would require a conception of ‘end’ so broad as to make the notion of instrumentality and the means-end relation meaningless.” “Notes on Miss Kyrk’s chapter on the Value Problem” (1923). Frank H. Knight Papers: box 10, folder 24. Special Collections Research Center, University of Chicago Library. On Knight’s somewhat controversial relationship with pragmatism see Hands (2006) and Fiorito (2009, 2011).

14 A particularly interesting case which can only be mentioned would be that of health wants. Certain remedies are said to be “specific” for certain diseases. But there seem to be much truth in the old-fashioned view that the diseases themselves are largely the product of civilization, and certainly medical science is placing more influence all the time on general hygiene and less on specifics. Presumably no one would argue that there is actually any specific correlation between health and the things people actually buy and do at a cost “for their health.”

Additional information

Funding

Massimiliano Vatiero gratefully acknowledges financial support provided by Brenno Galli Foundation.