Frank Knight's Conception of Entrepreneur and the Competitive Economic Order

The Significance of Risk, Uncertainty and Profit

Abstract

The thrust of this paper is to ascertain the theoretical base of Knight's critical writings in social science, and to search out fundamentals of his pluralistic thought, by reconstructing his theory of profit in Risk.
The point of Risk is comprised in three statements: (1) Suggestions by advocates of laissez-faire policy on the market price theory require the implicit assumption of perfect knowledge; (2) Estimates made by those who have only imperfect knowledge produce some significant effects on a real and uncertain world; (3) Profits accrue to the entrepreneur who makes the responsible estimate from its margin of error, real uncertainty.
The intention of Knight in developing his theory was to placard the unrealities of postulates of theoretical economics for the purpose of making clear the limitations of economics, and for establishing its dignity as an exact science. He therefore proceeded to insist on the necessity of rapprochement between economics and the other social sciences, especially ethics, in order to debate the desirable social order or social betterment.
Thus, Risk not only formed the solid ground of Knight's methodological discussion about social philosophy, but also laid the foundation of modern American economics.