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Title: Risk, Uncertainty and Profit by Frank H. Knight ISBN: 1-58798-126-2 Publisher: Beard Books Pub. Date: 01 April, 2002 Format: Paperback Volumes: 1 List Price(USD): $34.95 |
Average Customer Rating: 5 (2 reviews)
Rating: 5
Summary: Model of how economic problems should be analyzed
Comment: This is the best work of economic theory I have ever read. There is no work in economics that evinces better judgment on the main issues or that does a better job of balancing theory with a sense for the facts. Knight begins by defending theoretical (that is, deductive) economics. Unlike the economic rationalists, however, Knight does not believe that theoretical economics can lead to precise results. The application of the "analytic method" must always be "incomplete," he argues. Theoretical economics thus can only deal with "tendencies," that is, "with what 'would' happen under simplified conditions never realized, but always more or less closely approached in practice." This methodology Knight describes as "the method of successive approximations." Knight also warns of the dangers of rationalism and the necessity of constantly checking one's results against the facts. "When the number of factors taken into account in deduction becomes large, the process rapidly becomes unmanageable and errors creep in... It is better to stop dealing with elements separately before they get too numerous and deal with the final stages of the approximation by applying corrections empirically determined."
Armed with the method, Knight proceeds to tackle several important problems in economics, especially dealing with the theoretical construct of "perfect competition." By always keeping his head firmly within the empirically real, Knight is able to bring a great deal of sound judgment to a number of issues. Knight had a keen sense of human nature and how human beings behave in the real world of fact. He knew that most economists had made men out to be far more rational than they really were. Businesses, he argued, did not merely seek to meet the needs of the consumers; no, they sought to create new needs through innovation, advertising, and even a sort of manipulative hypnotism. In this, Knight argued, we find both progress and abuse, civilization and fraud. Knight also brings a good deal of sense to the problem of interest, demonstrating the psychological inadequacy of all time-preference theories of interest. But Knight's most important contribution consists in his analysis of the difference between risk and uncertainty. Risk, Knight argues, is a measurable probability that something could happen, like the probability that an individual will be struck by lightening or hit by a car. Uncertainty is a kind of immeasurable risk--e.g., predicting short term flucations in exchange rates. Knight's analysis is crucial to understanding economic reality. Knight's distinction between risk and uncertainty, for instance, explains why the rise of derivative securities in financial markets is so dangerous. Derivatives attempt to insure uncertainty, which is immeasurable, as if it were risk (which is measurable).
Rating: 5
Summary: Get this classic back in print!
Comment: This is the standard work in the field, give or take some stuff Keynes wrote on risk and capital.
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Title: Capitalism, Socialism, and Democracy by Joseph A. Schumpeter ISBN: 0061330086 Publisher: Perennial Pub. Date: 01 December, 1984 List Price(USD): $16.00 |
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Title: A History of Economic Thought by Lionel Robbins, Steven G. Medema, Warren J. Sanuels, Warren J. Samuels ISBN: 0691070148 Publisher: Princeton University Press Pub. Date: 15 November, 2000 List Price(USD): $22.95 |
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Title: Competition and Entrepreneurship by Israel M. Kirzner ISBN: 0226437760 Publisher: University of Chicago Press Pub. Date: 01 September, 1978 List Price(USD): $22.00 |
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Title: Individualism and Economic Order ISBN: 0226320936 Publisher: University of Chicago Press Pub. Date: 01 April, 1996 List Price(USD): $19.00 |
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Title: Theory of Economic Development: An Inquiry into Profits, Capital, Credit, Interest and the Business Cycle (Social Science Classics Series) by Joseph Alois Schumpeter ISBN: 0878556982 Publisher: Transaction Publishers Pub. Date: 01 January, 1983 List Price(USD): $24.95 |
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