This revolutionary work taught the world how to systematically distinguish between risk -- randomness with knowable probabilities -- and uncertainty -- randomness with unknowable probabilities -- in order to accurately and properly ascertain a venture's potential profitability. Knight's methodology served as the foundation of the Chicago School of Economics. -
To secure the minimum degree of uncertainty and at the same time keep the discussion as close to reality as possible, it is necessary to exercise some care in defining the assumptions with which we are working. The most obvious initial requirement is to eliminate the factors of social progress from consideration and consider first a static society. But this postulate calls for discrimination in handling. In an absolutely unchanging social life there would, as we have repeatedly observed, be no uncertainty whatever, and our analysis in chapter IV proceeded on this assumption. Such conditions are thoroughly incompatible with the most fundamental facts of the world in which we live, but their study serves the analytic purpose of isolating the effects of uncertainty. For different kinds of change and different degrees of change are real facts, and it will therefore involve less abstraction to study hypothetical conditions under which change is restricted to the most fundamental and ineradicable kind and amount. Societies may be and have been nearly unprogressive, and the obvious simplification to make is therefore the elimination of progressive change.
Frank H. Knight
Frank Hyneman Knight (1885-1972) - was the dominant intellectual influence in the Department of Economics at The University of Chicago during the formative years of the distinctive approach to economic analysis identified with Chicago Economics, An economist by training and a philosopher/historian by inclination, Knight spent his career opposing the efforts of progressives, institutionalists, Keynesians, and Christians who advocated social control in the name of science and/or morality. Liberal society, he believed, was always in danger from those who claimed to know what was best for society on either moral or scientific grounds. (Social scientists, he found, often were moralists and scientists simultaneously!) What liberal society required was ongoing vigilance to protect the never-ending nature of its discussion, and wise guides to maintain the discussion's quality. While knowledge of the core of economic theory was a necessary ingredient for intelligent discussion, ultimately economics played a small role in Knight's understanding of a well-functioning liberal society.
The "Grand Old Man" of Chicago, Frank H. Knight was one of the century's most eclectic economists and perhaps the deepest thinker and scholar American economics has produced. Jointly with Jacob Viner, Knight presided over the Department of Economics at the University of Chicago from the 1920s to the late 1940s, and played a central role in setting the character of that department that was perhaps only comparable to Schumpeter's tenure over Harvard or Robbins's at the L.S.E.
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