I disagree, Barkley, that a link of the sort you describe exists 
between Knight and Keynes, although I like the way that you 
introduced the subject. As I see it, Knight's concept of uncertainty, 
as he elucidated it in Risk, Uncertainty, and Profit, was part of 
crucial contribution to the non-mathematical neoclassical economics 
of the time. Keynes was not interested in this theory and I doubt 
that he even understood it. More below.


Barkley Rosser wrote:
>At the risk of introducing yet more non-certainty, if not true 
>uncertainty, I will add two further comments (and now it looks like 
>Cantillon may well have been ahead of all of them, which would not 
>be the first time).
>
>Regarding Keynes and Knight on entrepreneurship, which Cantillon and 
>others tie to "uncertainty," however defined, I would say that 
>Keynes leaves many parts of it out.  He does not discuss such 
>matters as organizing and founding a firm, hiring workers and 
>motivating them, or how one gets a new idea for a product or a 
>process, much less the details of how one raises financing, although 
>he was himself involved in such matters in practice.  Where his view 
>of uncertainty links with Knight and entrepreneurship is in his 
>theory of animal spirits, which many Austrians do not like for 
>reasons that remain mysterious to me.
>In the face of non-measurable non-certainty, whether it is for 
>epistemological reasons for risk or true ontological uncertainty (no 
>probability distribution to find), the entrepreneur must ultimately 
>make a decision to act, and at that point something beyond rational 
>logic must be involved, which Keynes invokes as "animal spirits," 
>although others will simply label "willingness to bear risk," which 
>does not quite capture it, since "risk" is supposedly measurable, 
>whereas uncertainty (or not-easily measured forms of risk) are not.
>Again, while many think about Keynes's use of the term in terms of 
>financial markets and speculation, he also clearly uses it in 
>relation to real capital investments, and making those needed to 
>start an enterprise are a crucial aspect of entrepreneurship.

The question you raise, as I understand it, concerns the role of 
animal spirits in a theory of market action. Perhaps the reason that 
Austrians don't like animal spirits is that they are irrelevant to 
the broader problem of building a theory of market interaction based 
on the assumption that individuals act. The idea that individuals act 
implies that their behavior is not ruled or even guided by animal 
spirits. It does not deny that part of their behavior may be 
determined by this. But behavior is not action. One may object to a 
theory of action, but that is not what you are doing. Nor did Keynes 
state such an objection.

Let me say this in a different way. Crusoe's behavior in any 
particular case might be best explained by referring to "animal 
spirits." But no reasonable person would suggest this assumption as a 
paradigm for building a theory of Crusoe as a distinctly human actor.

In economic theory as a theory of market action, one trusts the 
entrepreneur role, which is the embodiment of distinctly human action 
under market economy conditions, to make a decision that is more 
likely to be in the consumers' interests than otherwise. This trust 
is analogous to the trust one has that a real Crusoe would be more 
likely to achieve results that he regards as in his interest than otherwise.

The problem raised by the existence of animal spirits is how soon the 
entrepreneur role will identify them and incorporate them into its 
plans. It follows that while an action theorist might use the concept 
of animal spirits to help explain a financial crisis, she ought to do 
so within the context of a theory that includes the entrepreneur 
role. If animal spirits exist, the entrepreneur role has an incentive 
to identify them and to try to gain by incorporating them into its 
decisions. Animal spirits cannot rule or guide action; they can only 
function as a part of the environment that the entrepreneur role 
tries to understand and take into account in its quest for profit. As 
a theory of market action, economics deduces that a crisis due to 
animal spirits will end; the question is when.

Knight's 1921 book was a contribution to the theory of action under 
market economy conditions. It took for granted the new theory of 
value based on the judgments of individuals in the role of the 
consumer (Jevons, Menger, Walras, J.B. Clark, etc. -- the marginal 
productivity theory of distribution). Others before him (e.g., 
Herbert Davenport) recognized that, in order to employ this consumer 
value theory to understand market interaction, it was necessary to 
complement it with an entrepreneur role that conforms to the 
principle that was later to be called "consumer sovereignty." Knight 
set out to explore the functioning of this entrepreneur role. His 
concept of entrepreneurial uncertainty -- uncertainty about how 
others will act -- helped him make a contribution to economics as the 
study of action under market economy conditions that was totally new. 
This contribution included, among other things, those that you 
mentioned: "organizing and founding a firm, hiring workers and 
motivating them, or how one gets a new idea for a product or a 
process, much less the details of how one raises financing..."

Keynes was on a completely different path, which raises the question 
of how useful it is for an historian of economic thought to compare 
the two writers on any subject.


Pat Gunning