----------------- HES POSTING ----------------- Patrick Gunning is correct that Risk, Uncertainty and Profit is about the entrepreneur, but for Knight, entrepreneurs only exist in an environment in which there is uncertainty; that is, only in a world in which perfect knowledge is absent. Also, Knight's theory of entrepreneurship is overshadowed by a sense of tragedy: just as the possibility of economic knowledge is undermined by the lack of perfect knowledge, so too the entrepreneur's flair for finding profit opportunities is undermined by the creation of a corporate organization (see my 1999 HOPE article). A brief reader's guide and several quotes from Risk, Uncertainty and Profit (Knight, 1921; all pages refer to the Univ. of Chicago Press paperback edition of 1971, but I think the pages are the same as in the original). I know that stringing quotes together is not proof of anything, but it does give you something of the flavor of the attention Knight gave to perfect knowledge and uncertainty in the book. "The makers and users of economic analysis have in general still to be made to see that deductions from theory are necessary, not because literally true -- that in the strict sense they are useful _because not_ literally true -- but only if they bear a certain relation to literal truth and if all who work with them constantly bear in mind what that relation is." (chapter 1, page 15) "In the course of the argument it will become increasingly evident that the prime essential to that perfect competition which would secure in fact those results to which actual competition only 'tends,' is the absence of Uncertainty (in the true, unmeasurable sense). Other presuppositions are mostly included in or subordinate to this, that men must _know what they are doing_, and not merely guess more or less accurately." (chapter 1, page 20). Chapters 3 and 4 take up perfect competition, not departing from Marshall much, except to emphasize the role of knowledge in the theory. Chapter 5 then shows that it is possible to incorporate change into the theory of perfect competition without problems, as long as people know what the change will be: "in every case the necessary and sufficient condition . . . is that the change can be anticipated over the period of time to which producers' calculations relate." (chapter 5, p. 172). Chapter 6 has the other prerequisites which I mentioned in my earlier message (not chapter 7). Chapter 7 opens with: "Chief among the simplifications of reality prerequisite to the achievement of perfect competition is . . . the assumption of practical omniscience on the part of every member of the competitive system." (chapter 7, p. 197). After showing that it is not possible for this assumption to be correct because of uncertainty, Knight concludes the chapter by saying: "It is this _true uncertainty_ which by preventing the theoretically perfect outworking of the tendencies of competition gives the characteristic form of 'enterprise' to economic organization as a whole and accounts for the peculiar income of the entrepreneur." (chapter 7, p. 232). Chapter 8 distinguishes between risk and uncertainty: risk can be assimilated to perfect competition because the probabilities of outcomes can be known and hence insured; uncertainty is completely unknowable. Chapters 9 to 12 explore industrial organization in a world of uncertainty. Ross Emmett Augustana University College ------------ FOOTER TO HES POSTING ------------ For information, send the message "info HES" to [log in to unmask]