Frank Hyneman Knight (1885–1972) was “arguably the most important non-Keynesian American economist of his generation,” according to Michigan State University political and economic historian Ross Emmett, a Knight scholar. Knight was also, and perhaps mainly, a moral and political philosopher; at the end of his career at the University of Chicago he held a double appointment as professor of the social sciences and professor of philosophy. Freedom & Reform comes from the philosophical Knight: only two of the articles in the book appeared in economics journals, compared to half a dozen in philosophy journals.
What is economics? / Knight considered economics to be the study of “the effective use of means to realize ends.” Problems arise from the fact that the means (miscellaneous resources) are limited, while individual or “social” ends seem practically limitless. This conception differs in important ways from today’s mainstream notion of economics as a method of analyzing all human behavior on the basis of rational-choice assumptions, as pursued by Gary Becker and a later generation of Chicago economists.
Knight believed in reason and truth, writing that “the obligation to believe what is true because it is true, rather than to believe anything else or for any other reason, is the universal and supreme imperative for the critical consciousness.” He criticized the contamination of the social sciences by “romantic ethics” and preaching. But he also attacked scientism—that is, the blind application of the methods of the natural sciences to the social sciences—which he thought leads to social engineering by government experts.
Although there is no evidence that he was interested in the debates on welfare economics, he correctly saw that any policy decision based on economics ultimately requires value judgements, thus drawing a red line between economics and ethics. “No discussion of policy is possible apart from a moral judgement,” he wrote. In his mind, freedom is both an instrumental value and a value in itself, and it ultimately must be founded in generally accepted ethical principles. Coercion—the opposite of freedom—can only be defined in terms of what is judged to be wrong.
Liberalism and exceptions / Philosophical and political issues form the backbone of Freedom & Reform. Knight found many problems in both the theory of liberalism and in the societies (including America) that had rejected it. Knight always used “liberal” in its original sense of “classical liberal.” Emmett presents Knight as a disenchanted liberal who was trying to preserve the main tenets of the doctrine. Freedom & Reform contains both a defense and a critique of liberalism.
Most (non-anarchist) libertarians would approve Knight’s characterization of a free society:
The essential social-ethical principle of liberalism or liberal individualism may now be stated, for the purpose of examination. It is that all relations between men ought ideally to rest on mutual free consent, and not on coercion, either on the part of other individuals or on the part of “society” as politically organized by the state. The function and the only ideally right function of the state, according to this ethic, is to use coercion negatively, to prevent the use of coercion by individuals or groups against other individuals or groups. (Knight’s emphasis.)
“The main emphasis,” he explained, “needs to be placed on freedom … Accordingly, sound policy requires restricting the positive function of government to things on which there is general agreement.”
Freedom & Reform often seems written for today’s Americans. It laments the rise of “a new type of leadership” that “does not claim to know, or make its appeal on grounds of knowledge or reason.” It cites protectionism and nationalism as examples. It criticizes “the Leader in Washington” and “the ‘New Deals’ in Germany and the United States,” which “use different catchwords, but are variants on the same theme. … The cry is ‘All pull together,’ meaning ‘Follow me’ (and don’t ask critical questions).”
In Freedom & Reform, Knight even used the term “libertarian” once in describing the “modern Western man”: “Our ideal of life is active, progressive, and individualistic, or libertarian, as against ‘community’ in any mystical sense.” He stated that “where there is any serious difference of opinion as to any rule, liberty must prevail.” The reader may be reminded of the presumption of liberty defended by Anthony de Jasay, a current philosopher in the libertarian tradition. (See “The Valium of the People,” Spring 2016.)
Often, though, Knight resembled the typical conservative, who makes so many exceptions that one wonders what remains of freedom. In his view, the state can intervene to fight monopolies, to combat externalities, to control money, to ban narcotics, “to promote the diffusion of knowledge and the advancement of science, art, and general culture,” to alleviate poverty, and to fight economic inequality. He argued for progressive taxation, especially of inheritances. He represented the old Chicago economics tradition, not the postwar “Chicago school” created by more libertarian economists like Milton Friedman, George Stigler, and Becker. (See “A Ghostly Chasm,” Fall 2016).
Question everything / More than a set of solutions, Freedom & Reform can be read—or should be read—as raising deep questions related to the foundations and workings of the free society. “Knight often said that his purpose was to ask questions, rather than answer them,” Emmett observes. Indeed, there are more serious questions than serious answers in life; intellectual inquiries must start from there.
Knight raised intriguing questions about human nature. He argued that “human nature is a function of the nature of society, and both are historical products.” The proof is how men have changed from the primitive tribe to the modern, liberal man. Similarly, he claimed that “there really is no such thing as individual rationality. Rationality itself is social in nature and a product of stable group life.” Friedrich Hayek would not have disagreed.
Knight also questioned the characterization of man as a “social animal.” According to him, man is more strikingly an individualistic and antisocial animal, a lawbreaker. He is a “romantic fool,” “the discontented animal, the romantic, argumentative, aspiring animal,” a “capricious and perverse animal.”
The challenge Knight saw was how to have a free society in which such individuals can cooperate peacefully. Who will deny that he was on to something?
For him, a value is any principle that is generally accepted in a given society; or more specifically, accepted by discussion and agreement in a free society. These values are the true natural law. This means that natural law “properly defined is the opposite of ‘natural.’ ” It is created or reinforced by human institutions, including the democratic state—institutions that he saw in a voluntarist and even rationalistic way quite different from Hayek’s more passéiste conception. It also means that, in the realm of values as in the scientific realm, there is no “absolute absolute,” but only “relative absolutes,” which are true until potentially proven false. Nothing, no authority, whether religious or political (or both), is above questioning; but some values must be provisionally taken as relative absolutes.
Relative absolutes are worth defending and sometimes warring for. “It is surely the height of the immoral,” Knight wrote, “to contend that as a general principle men ought to yield to wrong, or what they seriously believe to be such … for the sake of agreement and pleasant personal relations.” Hence the problem with pacifism, which “would call for the abandonment by all, or at least the masses, of all rights, including life itself, except love and obedience, left, perhaps, to serve as ‘opium.’ ” He opposed both nationalism and “dictatorship on a world scale,” illustrating how classical-liberal moderation can be libertarian.
As a critical thinker, Knight wasn’t always sure of the solutions to the problems he raised. “It is not part of the aim of this article,” he wrote in 1944, “to give a solution of the problem of world organization, free from war but without sacrificing essential human values. The writer does not know the solution, if any exists.”
Problems / Knight’s liberalism is not without problems. As we saw, the author of Freedom & Reform envisioned a quite wide scope for government. He tended to eschew clear principles. He argued that “liberal thought has always recognized a large range of positive functions for the state, to be determined by expediency, but limited to matters on which there is substantial agreement.” Of course, this last restriction would seriously limit the scope of government.
In practice, though, it is not clear what Knight actually wanted. Take the field of education. Like many liberals, the author of Freedom & Reform believed that the maintenance of a free society requires a liberal public opinion, which should be gradually attainable through education. But he seemed to accept a rather open-ended scope of government intervention in this field. For example, he wrote that “education for freedom involves a large moral factor.… Probably limits will have to be set even to freedom of expression.”
A related problem is Knight’s apparent contradictions between his fear of “the omnipotent state” and his frequent willingness to trust it with wide powers. Some passing remarks are troubling, such as his justification of “one-sided control … in the case of ‘infants’ to be educated, or that of adults objectively determined to be antisocial or undeveloped and subject to reeducation, and of any who require overt control to prevent their acting destructively.” Knight was not a progressive and this book does not argue for eugenics, but a cryptic remark may be read as suggesting that it is not off-limits if human nature could be changed for the better in only that way. His prose is often obscure. Despite Knight’s doubts about political processes in practice, he still hoped his majoritarian democracy would somehow work. Of course, we must remember that Freedom & Reform predates public choice economics.
Modern libertarians can charge Knight with being middle-of-the-road. When a practical problem appeared, he tended to compromise on the statist side.
Modern libertarians can charge Knight’s brand of classical liberalism with being hopelessly middle-of-the-road. “Within limits, self-government, by the individual and society, is to be preferred to good government, where a choice must be made,” he wrote. “But only within limits; the liberal ideal is always one of balance and compromise.” When a practical problem appeared, he tended to compromise on the statist side. Since he wrote the articles reproduced in Freedom & Reform, “balance and compromise” have most often led to more government.
Knight’s influence / The most interesting feature of Knight’s ideas may be the influence they had on the following generation of classical liberal economists. Consider the central place that Freedom & Reform gives to exchange. “Since free exchange must benefit both parties,” he wrote, “it follows that any arbitrary dictation of any price, against free market forces (apart from fraud and monopoly), must injure both parties.” This had been a standard idea among economists for about two centuries, but Friedman and James Buchanan—as well as other University of Chicago economists like Stigler—gave it potency. That Friedman, Buchanan, and Stigler were all students of Knight and that each eventually won Nobels in economics testifies to their professor’s talents.
One cannot read Friedman’s 1962 book Capitalism & Freedom without recognizing Knight’s ideas, often in improved form. (And they were further improved as Friedman became more radical with time.) Capitalism & Freedom argued for re-appropriating the label “liberal.” Friedman emphasized, again à la Knight, that freedom was a rare occurrence and a great blessing in the history of mankind. He better explained how the free market is the only way to combine efficiency in production and individual freedom, and how it “permits unanimity without conformity.” He also drew a cleaner distinction between freedom (as absence of coercion) and the power or capacity to act. He reinforced the conception of society as a collection of individuals. And he was less concerned than Knight about monopolies and more suspicious of government.
Knight obviously struggled with the problem of aggregating the preferences of all members of society. “National interests are not unitary,” he correctly noted. He often put “society” or “we” in quotation marks. Yet, he could not resist invoking some sort of “social will” and even the “general will,” the very expression used by Jean-Jacques Rousseau in his defense of totalitarian democracy in Of the Social Contract.
Buchanan also inherited many ideas from Knight, including those on the importance of agreement, exchange, and equality of opportunities (an idea that neither Knight nor Buchanan rejected, contrary to most libertarians). More importantly, Buchanan devised conceptual tools to escape the contradiction between the Knightian ideal of “general” or “substantial” agreement and the reign of numerical majorities (or even minorities, when not every voter votes). Perhaps we can say that Buchanan rescued Knight from Rousseau. Buchanan did this by constructing a social contract theory of the state in which unanimity is conceptually reached at the “constitutional stage,” while ordinary electoral decisions, constrained by the constitution, are made at the “post-constitutional stage.” The implicit unanimous agreement provides the justification for, and limits to, state intervention under majoritarian democracy. The state is limited because the parties to the social contract will only agree on what is in the interest of each of them—the substantial agreement Knight was after.
Whether one agrees or not with Buchanan’s social contract, it is a brilliant construction. And while developing what came to be known as constitutional economics, Buchanan also became the main founder of the public choice school of economic analysis, which provides further arguments for limiting the scope of the state. Public choice theory has had a major influence on the study of politics and the evaluation of public policies.
By asking deep and often challenging questions, Freedom & Reform helps revisit the foundations of the free society. Complicated topics require nuanced evaluations and the analyst is justified in withholding an answer when he does not have one. However, there is a point where too many qualifications dilute the conclusion and the analyst looks like he is taking both sides of an issue—a problem that, in my opinion, often affects Knight’s analysis.
Yet (let me add another of my own qualifications!), one cannot read Freedom & Reform without many questions bouncing around in one’s head. This is certainly proof that the book was worth reading and an indication of how good a professor Knight was. At any rate, the book is very interesting from the viewpoint of the history of philosophical and economic thought. It was a milestone on the long, bumpy road to truth and liberty.
