Under the Spell of Knight
Samuelson was exposed to welfare thinking as an undergraduate at the University of Chicago. In the interdisciplinary social science course that he took in his sophomore year, he was exposed to ideas about the “human costs” of industry and the “human utility” of consumption on which the required reading was John A.
Hobson's Work and Wealth: A Human Valuation (1914; see Backhouse, 2017, p. 49). In this book, Hobson drew on resources from John Ruskin to differentiate between “economic” and “human” costs, imposing ethical judgments that were not necessarily those of the people whose activities were being analyzed (see Shionoya [Chapter 1) and Cain [Chapter 2], this volume). Samuelson's response to this material is unknown, but such ideas would have resonated with those of Frank Knight, who never taught him in a for-credit course, but with whom he became obsessed. He claimed that when he left Chicago he had read everything that Knight had ever written. Knight's ideas on welfare economics were brought together in a collection of his essays that four graduate students assembled to mark his fiftieth birthday, published asThe Ethics of Competition ([1935] 1997) in the year that Samuelson graduated. Samuelson was not involved in this project but, given his infatuation with Knight, his voracious reading habits and his friendship with George Stigler, one of the editors, it is inconceivable that he was not familiar with these essays. Given his love for Knight's iconoclasm, which was exhibited clearly in the essays, Samuelson would have read them carefully.
A repeated theme in Knight's writings was that wants were not to be taken as given. They were in large part determined by the economic system. Thus while Knight found much to admire in Pigou's work, he was critical of the idea that welfare should be calculated by adding up the total of satisfied wants.
He accepted the argument that individualism and the free market would place resources in the hands of those who valued them most, and maximize the social dividend, but he denied that this constituted “a sound ethical social ideal” (Knight, 1923, p. 588; 1997, p. 40). Social ideals had to come from ethics, not from arguments about the efficiency of the economic system.We contend not merely that such ideals are real to individuals, but that they are part of our culture and are sufficiently uniform and objective to form a useful standard of comparison for a given country at a given time.... In what follows we shall appeal to what we submit to be the common-sense ideals of absolute ethics in modern Christendom. (Knight, 1923, p. 583; 1997, p. 36)
Knight made no attempt “to ‘settle' moral questions or set up standards” but sought merely to “bring out the standards involved in making some familiar moral judgments in regard to the economic system, and to examine them critically” (Knight, 1923, pp. 583-4; 1997, pp. 36-7).1 Knight summarized his methodological position as being “any judgment passed upon a social order is a value judgment and presupposes a common measure and standard of values, which must be made as clear and explicit as possible if the judgment is to be intelligent. Economic efficiency is a value category and social efficiency an ethical one” (Knight, 1923, p. 623; 1997, p. 66).
Knight thus took into account the need for physical goods and the implications of the process of competition. His conclusion was that, irrespective of whether or not it was possible to find a better form of social organization, the competitive system had weaknesses. “There is,” he wrote, “a certain ethical repugnance attached to having the livelihood of the masses of the people made a pawn in such sport [i.e. ‘business considered purely as a game'], however fascinating the sport may be to its leaders,”
A similar position was taken by Gunnar Myrdal (1932). Further analysis of Knight's position is provided in Emmett (2009, ch. 8).
contrasting action motivated by rivalry with “the Pagan ethics of beauty or perfection and the Christian ideal of spirituality” (Knight, 1923, p. 624; 1997, p. 67).
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