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The common sense of economics and divergent approaches in economic thought: a view from Risk, Uncertainty, and Profit

Published online by Cambridge University Press:  31 March 2021

Peter J. Boettke  and
Rosolino A. Candela
Peter J. Boettke
Affiliation:
Department of Economics, George Mason University, Fairfax, VA22030, USA
Rosolino A. Candela*
Affiliation:
Mercatus Center, George Mason University, Fairfax, VA22030, USA
*
*Corresponding author. Email: rcandela@gmu.edu
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Abstract

This paper evaluates the contribution of Risk, Uncertainty, and Profit to the development of economic theory in the 20th century. Our argument in this paper is twofold. First, we contend that this book embodied what had been the common knowledge of early neoclassical economics prior to World War II (WWII). Second, we also argue that embryonic to Knight's account of economics were two divergent approaches to economic thought that emerged after WWII. The first approach, what has come to be known as microeconomics, is characterized by utility maximization under fixed price, income, and institutional parameters that approximate equilibrium. This first approach is distinct from a second approach, referred to as price theory, in which prices are not sufficient statistics, as in microeconomics, but operate as guides to consumption and production decisions under alternative institutional arrangements. This second approach not only represented the continuation of the mainline1 of economic thought from its classical and early neoclassical roots. It also embodies the basis for Knight's understanding of uncertainty, profit and entrepreneurship, as well as its implications for economic organization and social progress.

Keywords

EntrepreneurshipFrank Knightmicroeconomicsprice theory
Type
Research Article
Information
Journal of Institutional Economics , Volume 17 , Special Issue 6: Special Issue on the Centenary of Frank H. Knight's Risk, Uncertainty, and Profit , December 2021 , pp. 1033 - 1047
Copyright
Copyright © Millennium Economics Ltd 2021

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