Frank Knight

Last updated
Frank Knight
Frank H Knight.jpg
Frank Hyneman Knight

(1885-11-07)7 November 1885
Died15 April 1972(1972-04-15) (aged 86)
Parent(s)Winton Knight (father )
Julia Hyneman (mother)
Relatives Melvin Moses Knight (brother)
Bruce Winton Knight (brother)
Academic career
Institution Cornell University
University of Chicago
University of Iowa
FieldRisk theory
Profit theory
Value theory
School or
Chicago School of Economics
Alma mater Milligan College
University of Tennessee
Cornell University
Allyn A. Young
Alvin S. Johnson
Milton Friedman
George Stigler
Charles E. Lindblom
James M. Buchanan
Influences Clarence Edwin Ayres
John Bates Clark
Herbert J. Davenport
Max Weber
Contributions Knightian uncertainty
Awards Francis A. Walker Medal (1957)

Frank Hyneman Knight (November 7, 1885 – April 15, 1972) was an American economist who spent most of his career at the University of Chicago, where he became one of the founders of the Chicago School.


Nobel laureates Milton Friedman, George Stigler and James M. Buchanan were all students of Knight at Chicago. Ronald Coase said that Knight, without teaching him, was a major influence on his thinking. [1] F.A. Hayek considered Knight to be one of the major figures in preserving and promoting classical liberal thought in the twentieth century. [2] [3]

Paul Samuelson named Knight (along with Harry Gunnison Brown, Allyn Abbott Young, Henry Ludwell Moore, Wesley Clair Mitchell, Jacob Viner, and Henry Schultz) as one of the several "American saints in economics" born after 1860. [4]

Life and career

Knight (BA, Milligan College, 1911; BS and AM, Tennessee, 1913; PhD, Cornell, 1916) was born in 1885 in McLean County, Illinois, the son of Julia Ann (Hyneman) and Winton Cyrus Knight. [5] After his early study at the University of Tennessee, most of his academic career was spent at the University of Chicago, where he was the Morton D. Hall Distinguished Service Professor of Social Science and Philosophy. Knight was one of the world's leading economists, having made significant contributions to many problems of both economic theory and social philosophy. He is best known for his Risk, Uncertainty and Profit, a study of the role of the entrepreneur in economic life. [6] In 1950 he was president of the American Economic Association and in 1957 the recipient of its coveted Francis A. Walker Award, given "not more frequently than once every five years to the living (American) economist who in the judgment of the awarding body has during his career made the greatest contribution to economics." His ashes are interred in the crypt of First Unitarian Church of Chicago.

Knight is best known as the author of the book Risk, Uncertainty and Profit (1921), based on his PhD dissertation at Cornell University. In that book, he carefully distinguished between economic risk and uncertainty. Situations with risk were those where the outcomes were unknown but governed by probability distributions known at the outset. He argued that these situations, where decision making rules such as maximising expected utility can be applied, differ in a deep way from "uncertain" ones, in which not only the outcomes, but even the probability models that governed them, were unknown. Knight argued that uncertainty gave rise to economic profits that perfect competition could not eliminate.

While most economists now acknowledge Knight's distinction between risk and uncertainty, the distinction has not resulted in much theoretical modelling or empirical work. However, the Knightian concept of uncertainty has been recognized in a variety of works: John Maynard Keynes discussed it at length in his Treatise on Probability; [7] Armen Alchian relied on it for discussing market behavior in his seminal paper Uncertainty, Evolution and Economic Theory; Paul Davidson incorporated it as an essential element in the Post Keynesian school of economics he co-founded; and G.L.S. Shackle explored the methodological consequences of Knight's and Keynes's fundamental uncertainty in his Epistemics and Economics. A more model-oriented contribution is the "Markets from Networks" model developed by sociologist Harrison White from 2002.

Knight also famously debated A. C. Pigou about social costs. He also contributed to the argument for toll roads. He said that rather than congestion justifying government tolling of roads, privately owned roads would set tolls to reduce congestion to its efficient level. In particular, he developed the argument that forms the basis of analysis of traffic equilibrium, which has since become known as Wardrop's Principle:

Suppose that between two points there are two highways, one of which is broad enough to accommodate without crowding all the traffic which may care to use it, but is poorly graded and surfaced; while the other is a much better road, but narrow and quite limited in capacity. If a large number of trucks operate between the two termini and are free to choose either of the two routes, they will tend to distribute themselves between the roads in such proportions that the cost per unit of transportation, or effective returns per unit of investment, will be the same for every truck on both routes. As more trucks use the narrower and better road, congestion develops, until at a certain point it becomes equally profitable to use the broader but poorer highway.

Knight was a co-founder and vice president of the Mont Pelerin Society of like-minded economists. [8]

Knight was raised Christian, but later became an atheist. [9]

Notable works


Related Research Articles

<span class="mw-page-title-main">Carl Menger</span> Founder of the Austrian School of economics (1840–1921)

Carl Menger von Wolfensgrün was an Austrian economist and the founder of the Austrian School of economics. Menger contributed to the development of the theories of marginalism and marginal utility, which rejected cost-of-production theory of value, such as developed by the classical economists such as Adam Smith and David Ricardo. As a departure from such, he would go on to call his resultant perspective, the subjective theory of value.

<span class="mw-page-title-main">Friedrich Hayek</span> Austrian–British economist, philosopher, Nobel Laureate

Friedrich August von Hayek, often referred to by his initials F. A. Hayek, was an Austrian-British economist and political philosopher who made contributions to economics, political philosophy, psychology, intellectual history, and other fields. Hayek shared the 1974 Nobel Memorial Prize in Economic Sciences with Gunnar Myrdal for work on money and economic fluctuations, and the interdependence of economic, social and institutional phenomena. His account of how prices communicate information is widely regarded as an important contribution to economics that led to him receiving the prize.

<span class="mw-page-title-main">John Maynard Keynes</span> British economist (1883–1946)

John Maynard Keynes, 1st Baron Keynes was an English economist and philosopher whose ideas fundamentally changed the theory and practice of macroeconomics and the economic policies of governments. Originally trained in mathematics, he built on and greatly refined earlier work on the causes of business cycles. One of the most influential economists of the 20th century, he produced writings that are the basis for the school of thought known as Keynesian economics, and its various offshoots. His ideas, reformulated as New Keynesianism, are fundamental to mainstream macroeconomics. He is known as the "father of macroeconomics".

<span class="mw-page-title-main">Uncertainty</span> Situations involving imperfect or unknown information

Uncertainty or Incertitude refers to epistemic situations involving imperfect or unknown information. It applies to predictions of future events, to physical measurements that are already made, or to the unknown. Uncertainty arises in partially observable or stochastic environments, as well as due to ignorance, indolence, or both. It arises in any number of fields, including insurance, philosophy, physics, statistics, economics, finance, medicine, psychology, sociology, engineering, metrology, meteorology, ecology and information science.

<span class="mw-page-title-main">Paul Samuelson</span> American economist (1915–2009)

Paul Anthony Samuelson was an American economist who was the first American to win the Nobel Memorial Prize in Economic Sciences. When awarding the prize in 1970, the Swedish Royal Academies stated that he "has done more than any other contemporary economist to raise the level of scientific analysis in economic theory". Economic historian Randall E. Parker has called him the "Father of Modern Economics", and The New York Times considers him to be the "foremost academic economist of the 20th century."

<span class="mw-page-title-main">Law and economics</span> Application of economic theory to analysis of legal systems

Law and economics, or economic analysis of law, is the application of microeconomic theory to the analysis of law. The field emerged in the United States during the early 1960s, primarily from the work of scholars from the Chicago school of economics such as Aaron Director, George Stigler, and Ronald Coase. The field uses economics concepts to explain the effects of laws, to assess which legal rules are economically efficient, and to predict which legal rules will be promulgated. There are two major branches of law and economics; one based on the application of the methods and theories of neoclassical economics to the positive and normative analysis of the law, and a second branch which focuses on an institutional analysis of law and legal institutions, with a broader focus on economic, political, and social outcomes, and overlapping with analyses of the institutions of politics and governance.

The Chicago school of economics is a neoclassical school of economic thought associated with the work of the faculty at the University of Chicago, some of whom have constructed and popularized its principles. Milton Friedman, and George Stigler are considered the leading scholars of the Chicago school.

<span class="mw-page-title-main">Jacob Viner</span> Canadian economist

Jacob Viner was a Canadian economist and is considered with Frank Knight and Henry Simons to be one of the "inspiring" mentors of the early Chicago school of economics in the 1930s: he was one of the leading figures of the Chicago faculty. Paul Samuelson named Viner as one of the several "American saints in economics" born after 1860. He was an important figure in the field of political economy.

Common and special causes are the two distinct origins of variation in a process, as defined in the statistical thinking and methods of Walter A. Shewhart and W. Edwards Deming. Briefly, "common causes", also called natural patterns, are the usual, historical, quantifiable variation in a system, while "special causes" are unusual, not previously observed, non-quantifiable variation.

<span class="mw-page-title-main">Lionel Robbins</span> British economist (1898–1984)

Lionel Charles Robbins, Baron Robbins, was a British economist, and prominent member of the economics department at the London School of Economics (LSE). He is known for his leadership at LSE, his proposed definition of economics, and for his instrumental efforts in shifting Anglo-Saxon economics from its Marshallian direction. He is famous for the quote, "Humans want what they can't have."

<i>The Road to Serfdom</i> Book by Friedrich von Hayek

The Road to Serfdom is a book written between 1940 and 1943 by Austrian-British economist and philosopher Friedrich Hayek. In the book, Hayek "[warns] of the danger of tyranny that inevitably results from government control of economic decision-making through central planning." He further argues that the abandonment of individualism and classical liberalism inevitably leads to a loss of freedom, the creation of an oppressive society, the tyranny of a dictator, and the serfdom of the individual. Hayek challenged the view, popular among British Marxists, that fascism was a capitalist reaction against socialism. He argued that fascism, Nazism, and state-socialism had common roots in central economic planning and empowering the state over the individual.

In economics, Knightian uncertainty is a lack of any quantifiable knowledge about some possible occurrence, as opposed to the presence of quantifiable risk. The concept acknowledges some fundamental degree of ignorance, a limit to knowledge, and an essential unpredictability of future events.

Aaron Director was a Russian-born American economist and academic who played a central role in the development of law and economics and the Chicago school of economics. Director was a professor at the University of Chicago Law School, and, together with his brother-in-law, Nobel laureate Milton Friedman, influenced a number of jurists, including Robert Bork, Richard Posner, Antonin Scalia, and Chief Justice William Rehnquist.

George Lennox Sharman Shackle was an English economist. He made a practical attempt to challenge classical rational choice theory and has been characterised as a "post-Keynesian", though he is influenced as well by Austrian economics. Much of his work is associated with the Dempster–Shafer theory of evidence.

<span class="mw-page-title-main">Edwin Cannan</span> British economist and economic historian

Edwin Cannan was a British economist and historian of economic thought. He taught at the London School of Economics from 1895 to 1926.

<i>The Constitution of Liberty</i> 1960 book by Friedrich von Hayek

The Constitution of Liberty is a book written by Friedrich Hayek, first published in 1960 by the University of Chicago Press. Many scholars have considered The Constitution of Liberty as the most important work by Hayek.

<span class="mw-page-title-main">The Use of Knowledge in Society</span> 1945 scholarly article by economist Friedrich Hayek

"The Use of Knowledge in Society" is a scholarly article written by economist Friedrich Hayek, first published in the September 1945 issue of The American Economic Review.

A Treatise on Probability, published by John Maynard Keynes in 1921, provides a much more general logic of uncertainty than the more familiar and straightforward 'classical' theories of probability. This has since become known as a "logical-relationist" approach, and become regarded as the seminal and still classic account of the logical interpretation of probability, a view of probability that has been continued by such later works as Carnap's Logical Foundations of Probability and E.T. Jaynes Probability Theory: The Logic of Science.

Policy uncertainty is a class of economic risk where the future path of government policy is uncertain, raising risk premia and leading businesses and individuals to delay spending and investment until this uncertainty has been resolved. Policy uncertainty may refer to uncertainty about monetary or fiscal policy, the tax or regulatory regime, or uncertainty over electoral outcomes that will influence political leadership.

Alan Oliver (Lanny) Ebenstein is an American political scientist, educator and author, known from his biographical works on Friedrich Hayek and Milton Friedman.


  1. Ross B. Emmett (2010). The Elgar Companion to The Chicago School of Economics. Elgar. p. 238. ISBN   978-1849806664.
  2. Hayek, Friedrich A. (2012). "The Transmission of the Ideals of Freedom". Econ Journal Watch. 9 (2): 163–169.
  3. Hayek, F.A. (1967). "The Transmission of the Ideals of Economic Freedom". Studies in Philosophy, Politics and Economics . London: Routledge & Kegan Paul. p.  198 via Internet Archive.
  4. Ryan, Christopher Keith (1985). "Harry Gunnison Brown: economist". Iowa State University. Retrieved 7 January 2019.
  5. "Archived copy" (PDF). Archived from the original (PDF) on 2015-09-23. Retrieved 2019-12-20.{{cite web}}: CS1 maint: archived copy as title (link)
  6. Bylund, Per L. (2021). "Introduction to the special issue on the Centenary of Frank H. Knight's Risk, Uncertainty, and Profit". Journal of Institutional Economics. 17 (6): 877–881. doi: 10.1017/S1744137421000564 . ISSN   1744-1374.
  7. Keynes, John Maynard (1921). A Treatise on Probability . London: Macmillan.
  8. Alan Ebenstein (2014). Friedrich Hayek: A Biography. St. Martin's Publishing. p. 146. ISBN   978-1466886766.
  9. Lanny Ebenstein (2007). Milton Friedman: A Biography. Palgrave Macmillan. p. 21. ISBN   978-0230603455. Frank Knight was the other leading member in the department when Friedman was a graduate student. Born in 1885, Knight hailed from a rural Christian background but early became an atheist.
  10. 1 2 3 4 5 6 7 Boyd, Robert (2008). "Knight, Frank H. (1885–1972)". In Hamowy, Ronald (ed.). The Encyclopedia of Libertarianism. Thousand Oaks, CA: Sage; Cato Institute. pp. 274–275. doi:10.4135/9781412965811.n164. ISBN   978-1412965804. LCCN   2008009151. OCLC   750831024.
  11. "Golden Plate Awardees of the American Academy of Achievement". American Academy of Achievement.