Risk, Uncertainty and Profit

, by Knight, Frank Hyneman

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ISBN: 9781587981265 | 1587981262
Cover: Paperback
Copyright: 4/1/2002

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Author Biography

Supplemental Materials

Preface to the First Edition

vii

Preface to the Re-issue (1933)

Preface for the Reprint of 1948

xxxvii

Preface for the Reprint of 1957

lii

PART ONE INTRODUCTORY

The Place of Profit and Uncertainty in Economic Theory

(19)

The nature and necessity of a deductive science of economics

Analogy of physical science

Necessity of emphasizing the abstract character of hypotheses

Thought means analysis and analysis abstraction

The assumption of perfect competition

Profit absent

The conditions of perfect competition include especially perfect knowledge, and profit is to be explained by uncertainty

Plan of the book

Theories of Profit; Change and Risk in Relation to Profit

(29)

Historical sketch of the treatment of profit in economic literature

Special consideration of the Dynamic and the Risk theories

The former confuses the effects of change with those of the uncertainty connected with change

The latter falls into confusion by failing to distinguish between risk in the sense of a measurable probability and an uncertainty which cannot be measured

Change according to a known law does not give rise to profit, nor does risk if measurable, since it can be eliminated by insurance or some equivalent device

PART TWO PERFECT COMPETITION

The Theory of Choice and of Exchange

(43)

Wants, and the economic order as a mechanism for organizing want-satisfying activity

Conflict of wants

Resources, and their use to satisfy a plurality of wants

Utility and Diminishing Utility

Simple choices; the boy and the berries; Crusoe and the Crusoe economy; the production and exchange of goods under simplified social conditions

The problem that of combining alternatives

Pleasure and pain relative

Cost is a sacrificed alternative

The true significance of resources and resource costs

Formulation of the relations in functions, curves and equilibria

Joint Production and Capitalization

(47)

The use of a plurality of kinds of resource in producing various commodities and the resulting problem of organization

The law of diminishing returns, analogue of the law of diminishing utility

The imputation of product-values to resources or cost-goods and resultant placing of the latter to maximize their yield

Critique of the productivity theory

The values of productive services in terms of demand and supply

No valid classification of productive agencies into ``factors'' is possible

The role of time in production and the fallacy of time preference

Change and Progress with Uncertainty Absent

141

(33)

The meaning of static conditions and the forms of progress

Question of classifying productive agencies along conventional tripartite lines

Changes in supply and demand of productive goods and in the distributive shares

Question of progress toward equilibrium levels

All modes of progress represent alternative methods of investing present resources for a future gain

With uncertainty absent the rate of return would be equal in all these fields

Contrast with present facts

The nature of interest as a peculiar form of income, distinguishable from rent

Minor Prerequisites for Perfect Competition

174

(23)

Brief consideration of conditions requisite for perfect competition other than the absence of uncertainty

Divisibility of elements in the adjustment

Lack of moral connotation of the term ``productivity''

Monopoly; various forms; is productive in the economic sense

Tendency of a competitive system toward monopoly and a universal dead-lock

PART THREE IMPERFECT COMPETITION THROUGH RISK AND UNCERTAINTY

The Meaning of Risk and Uncertainty

197

(36)

Outlines of a theory of knowledge

The role of consciousness in behavior

Conduct is forward looking and the problem of knowledge is prediction

Knowledge of the future depends on the fact that experience can be analyzed into the behavior of objects which maintain their identity

But there are too many of these for our intelligence to handle, so we depend on inferring one mode of behavior from another; i.e., upon constancy in association of properties

Generally speaking, exhaustive and quantitative analysis is impossible, and we ``estimate''

Commonly there is a diversity in the possible modes of behavior to be inferred, and we reason in terms of ``probability'' of various outcomes

Probability a priori vs. statistical

Errors in judgment usually not susceptible to objective evaluation on any ground, though they are estimated as probabilities

The ``risks'' which give rise to profit are chiefly of the nature of chances of error in judgment, and hence not measurable, because too unique to form into classes

Structures and Methods for Meeting Uncertainty

233

(31)

Attitudes toward uncertainty

Variable factors

Free enterprise

The economic organization deals with uncertainty by reducing it or specializing the function of meeting it

The chief method of reduction is by consolidation, though important structures exist for perfecting information and for the direct control of the future

Insurance the chief device for consolidation

Speculation specializes risk, but is fully as important as a means of consolidation

Large-scale operation, especially the corporation

Promotion

Enterprise and Profit

264

(27)

Introduction of uncertainty into a perfectly equilibrated static society

Specialization of the function of management and risk-assumption

Contractual income and residual income

Conditions which control the amount of the profit share, chiefly timidity vs. optimism of entrepreneurs, especially in estimating their own powers

Supply and demand of entrepreneur ability

Enterprise and Profit (continued) The Salaried Manager

291

(22)

Indirectness of knowledge and control

We generally judge the capacity of some one else to judge for us and not our problem itself

In the same way we get things done by getting others to do them

The characteristic quality of the executive is judgment of men

The final control is the selection of men to control in business organization, and this is inseparable from responsibility

The distribution of authority and responsibility in the modern business world

Uncertainty and Social Progress

313

(34)

Change, the main source of uncertainty, is the source of the problem of control

Uncertainty in the investment of resources gives rise to a separation of the function of investment from that of saving

The theory of interest

The uncertainty element in relation to the various forms of progressive change

Complicated problems arising out of the capitalization of profits

The permanence of profit; friction, and mobility

Social Aspects of Uncertainty and Profit

347

(30)

All methods of reducing or redistributing uncertainty involve costs

The extent to which they should be carried depends upon how far uncertainty as such is undesirable

Free enterprise concentrates control and responsibility in the hands of property-owners, and a small class of these

Contrast between free enterprise and freedom

From the standpoint of efficiency alone it is fairly clear that men work more interestedly and effectively for an uncertain than for a certain reward

Question of the aggregate amount of the profit share

All evidence indicates that it is negative

Question of abolishing free enterprise in favor of some other system

Largely a problem of getting those in control of economic activity to feel an independent creative spirit

The great difficulty of control beyond one's own life-time; social continuity and the family problem

Index

377

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Risk, Uncertainty and Profit

Author Biography

Table of Contents

Supplemental Materials

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Risk, Uncertainty and Profit

Author Biography

Table of Contents

Supplemental Materials

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