Frank Knight on Foolish Beliefs and Vending Machines

Jonathan B. Wight

Interesting perspectives from Frank Knight, fifty years ago*:

Of the many "fool" beliefs about "capitalism" current in the public mind, none is intellectually more false or socially more costly than the idea that the employee is "working for" a capitalist or property-owner, or "management," or any "boss," any more than the latter is working for him—or that either is true. Exchange and its benefits are mutual, and in a free-market system nobody works for any one but himself, except as he chooses to do so, on charitable grounds [emphasis added].

Lovely! It's refreshing to view ourselves in control of our destinies, not victims of circumstances. But of course, this sanguine view is based on living in a country with an impartial legal system and competitive labor markets. Much of world's population lives in rural areas where often a monopsony (buyer monopoly) exists. Agricultural workers may be tied to the land by generational debts. Trying to leave for a better opportunity could land you in jail. Knight cautions us to have a realistic view:

However, these self-evident generalizations by no means prove that under realistic conditions complete laisser-faire is socially ideal. That, it is equally a primary task of economic teaching to make clear, against the folly or prejudice of those who oppose governmental action on principle."

Finally, this quote on the alleged impersonal nature of exchange:

In fact, the concept of perfect economic rationality is finally mechanistic, and the perfect market could be approximated only if exchanges were made through vending machines, without personal contact (emphasis added, p. 274).

And since most transactions involve people conversing, exchanging information, and bonding, some other mechanism beside perfect economic rationality may be present to make it all work.

*"Methodology in Economics: Part II," Southern Economic Journal, Vol. 27, No. 4 (Apr., 1961): 273-282.

[Thanks to David Levy at George Mason University for unearthing this article.]

Comments

[Jonas Feit]

It is 'refreshing to view ourselves in control of our destinies, not victims of circumstances,' but I think that perspective is dependent as much on membership in a privileged class as it is on our beneficent institutions. This blind spot is the fatal flaw of libertarianism.

I think also that this desire to view every aspect of our lives as the consequence of our own rational choices explains the appeal of libertarian ideas to the traditional victims of those ideas.