The American economist Frank Hyneman Knight (1885-1972) was a leading figure in the influential Chicago school of neoclassic economics, especially in his descriptive model of the system of perfect competition.
Frank Knight was born on a farm in McClean County, Illinois, on November 7, 1885. During his boyhood he was exposed to the fire-and-brimstone evangelism of the American Midwest, which probably led to his lifelong contempt for religious dogma. He received a bachelor's degree from Milligan College in Tennessee in 1911 and bachelor's and master's degrees from Cornell University in 1916. At Cornell he studied under Allyn Young, who exerted a direct influence on Knight's economic ideas.
Knight's academic career included appointments at Cornell, Chicago, and Iowa before he returned in 1928 to Chicago, where he was subsequently appointed Morton Hull professor of economics. Throughout his academic career Knight remained primarily an intellectual. He lived in the world of ideas and thus, he felt, preserved his intellectual integrity by not becoming involved in government service, activist organizations, or writing for the popular journals and newspapers. As skeptical scholar, critic, and self-made intellectual, he has been described as preeminently a product of the American Midwest, utterly unlike the typical sophisticated eastern seaboard intellectual.
Risk, Uncertainty, and Profit (1921), Knight's first major work, was originally written as his doctoral dissertation in 1916. As with so many of his later works, his goal was clarification—the clarification of what he regarded as certain ambiguities in the neoclassic economic theory of organization, especially as found in Alfred Marshall's works. In particular he sought to make clear the distinction between rent and profit. He thus described in detail the features of a system in which competition is perfect. His treatment of this question of perfect competition has been described as the apogee of neoclassic theorizing. Unlike a number of theorists who later cited him for programmatic political reasons, Knight fully realized and stated explicitly that the model of perfect competition is a construct of the mind, an idealization of reality, not a description of it. Some of those who followed him overlooked this important qualification and expected actual world institutions to be in accord with the model. The effect of this error was to permit the critics of a competitive economic order to effectively undermine much of the general social support for it, especially when comparative analysis failed to consider the flaws of alternative economic systems.
Knight exerted a great influence on applied economic theory in the 20th century, including that of the Richard Nixon administration, especially through his work The Economic Organization (1951). Its particular value is its integrated approach to the economy as a social organization. For example, he spelled out the five functions of the economic system, an approach that found its way into many basic economic textbooks, and used the image of the wheel of wealth or income, which is another standard feature of introductory texts and popular publications.
However, Knight is considered more of an essayist than a writer of economic tomes. His whole work has been described as a continuing review of the books that are written or read uncritically by so many others. This aspect of his work is most evident in The Ethics of Competition (1921-1935), a collection of his essays edited by a group of his students. The work is characterized more by the raising of critical questions than by the providing of answers. In one tour de force he denied that wants are static in human nature, and thus no government or economic system can ever satisfy human desires, since new ones are always arising. The instant one desire is satisfied, another arises to take its place.
Knight's pessimistic 1935 essay "Economic Theory and Nationalism" views the development of human history as a tragic one. He was critical of liberalism, which failed because of its own excesses and thus led directly to socialism as its replacement. Attempting to analyze the attractiveness of systems alternative to liberalism (such as national socialism), which he felt were equally wrong on other counts, he perceptively presented their values that stress the natural human desire to be part of a larger organic whole such as the nation. Knight viewed modern man's main problem as a moral one, not an economic one. He felt that liberalism had destroyed conventional religion without providing any effective substitute for it and judged that what men need is a common morality founded on truth. In Knight's Intelligence and Democratic Action (1960), his attitude on the attainment of this goal is somewhat optimistic. Knight died in 1972.
No definitive biography of Knight has been published. For a collection of essays about Knight's work and economic theory based on his work, see Blaug, Mark, ed. Frank Knight (1885-1972, Henry Simons) (1992).