History of Economic Thought. Chicago School: Frank Knight (Highlights)

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History of Economic Thought. Chicago School: Frank Knight (Highlights)

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84. CHICAGO SCHOOL: FRANK NIGHT

The Chicago school is represented primarily by its head - the theorist of monetarism Milton Friedman, and its founder is considered an economist, philosopher and sociologist Frank Knight (1885-1972), who recognized the priority importance of a “competitive economy”. Economists of this school study not so much general as individual problems of economic science (behavior theory, information theory, etc.).

According to the views F. Knight the laws of economic science are derived on the basis of logical reasoning, intuitively formulated starting points. Economic theory is designed to consider purely economic processes, abstracting from technological, social, and structural elements.

Knight believed that economic theory is always abstract, it is forced to rely on intuitive knowledge.

Main labor F. Knight "Risk, Uncertainty and Profit" (1921). It examines the process of profit generation.

Profit, according to Knight, this is not just income for the management services of an entrepreneur. In a stationary economy, there is no profit. It is formed only in specific conditions; it is received by those entrepreneurs who are able to foresee unexpected changes in the sphere of production and exchange and are ready to take risks.

F. Knight associates profit with the factor of uncertainty. It is one thing - the foreseeable uncertainty, the probability of which can be calculated (fire, crop failure), it is insured and included in the costs. Another thing - "unique uncertainty", associated, for example, with unexpected market fluctuations.

Not everyone can accurately predict in advance fluctuations in demand, real production volumes, falling or rising prices, changes in the exchange rate.

Anyone who is able to assess uncertainty, guess the optimal price level, take an unmeasurable risk, he can have income that exceeds costs. Operating in conditions of genuine uncertainty, the entrepreneur, in the event of a successful development of events, will receive a profit.

According to Knight, the formation of profit is associated with an uncertainty factor. If the future were known, then profit would be impossible.

Profit - this is the result of risk, intuition, luck; a kind of reward for a risky venture.

Profits arise in the face of uncertainty about what will happen tomorrow. Under normal circumstances, revenue covers all opportunity costs; there is no profit, it is equal to zero.

As a student and successor J. Clark, F. Knight argued with him, arguing that profit is not just factor income. Under normal conditions, the entrepreneur, as the owner of capital, receives a percentage (and not a profit).

Many economists contributed to the development of profit theory: J. Schumpeter substantiated the theory of the innovator who makes a profit for innovations. Some authors associate profit with the function of organizing production (A. Marshall), with the function of adapting to change. Each approach is not exhaustive; rather, they complement each other.

Followers Knight developed his approach. One of the successors of the ideas of "competitive economy" is M. Friedman.

Author: Tatarnikov E.A.

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