[Paleopsych] Robert Nelson: Frank Knight and Original Sin

[Premise Checker]

Frank Knight and Original Sin
http://independent.org/pdf/tir/tir_06_1_nelson.pdf
Robert H. Nelson is a professor in the School of Public Affairs at the
University of Maryland and a senior fellow of the Competitive Enterprise
Institute.
The Independent Review, v.VI, n.1, Summer 2001, ISSN 1086-1653, pp.
5-25.

[This is certainly the best paper on the legendary teacher, Frank Knight, 
that I have ever read. Good teachers, I suppose, teach the subject in an 
organized fashion, and there are continual efforts afloat to assess 
teachers on how well they teach their subjects. But the best teachers do 
not teach the subject; they teach themselves. And so it was with James 
Buchanan (see below), a Knight student that was my dissertation director, 
and whose classes were more about his current thinking than anything else. 
He would honor mere graduate students, expecting us to evaluate his ideas 
and his research as though we were colleagues.

[And so it was with Gordon Tullock, too, though I don't think he was ever 
a Knight pupil, who also taught himself. But the best example was a 
definite Knight pupil, Rutledge Vining, who taught the same thing no 
matter whether the course was in the concept of economic legislation or 
the spatial distribution of an economic system. What he taught--what he 
pounded in to all his students, none of whom he thought ever understood 
him--were three ideas, his own ideas. These ideas stuck. I can scarcely 
think of any problem without running them through Mr. Vining's three 
ideas. They were: 1. Find out exactly what is the problem being complained 
about; 2. Know the difference between the playing of the game and the 
rules of the game (and between the laws and the constitution); 3. Know the 
difference between (probability) outcome and (probability) process.

[I met Knight only briefly toward the end of his life. I was memorable, 
since Jim spoke about him so often. (Knight was his dissertation director, 
thus making him my grand-director.) Knight was only moderately prolific, 
Vining scarcely at all, and neither could get published today. I don't 
think Vining's writings would be much appreciated by someone who did not 
know him, but Knight can be read with profit by all, letting his way of 
viewing the world, questioning the world seep in and without having to 
decide whether Knight is right or wrong.

[Leo Strauss, the political philosopher and alleged godfather of 
neo-conservatism, is another legendary teacher, and he must be, for I 
can't discern from his writings what the fuss was about. In any case, the 
article below is another proof how religion and a religious upbringing can 
pervade one's thinking, no matter how violently one has rejected it.]

-----------------

Many people would say that John Maynard Keynes made a greater impact on
the history of the twentieth century than any other economist. Yet it
would not be farfetched to suggest that Frank H. Knight deserves to be
ranked with Keynes in this regard. The manner of their influence, to be
sure, was altogether different. Besides writing The General Theory,
Keynes circulated his policy advice at the highest levels of the British
government and had a great ability to influence public opinion through
his popular writings. In complete contrast, Knight made his great impact
on the world as a teacher. Indeed, the history of the Chicago school of
economics begins with Frank Knight. Without his teaching in the
economics department at the University of Chicago, the Chicago school,
which was destined to have such extraordinary influence on the world
during the second half of the twentieth century, might never have come
into existence.

According to Melvin Reder, "the personal affection and mutual esteem in
which Knight and his proteges held one another facilitated the
collaborative efforts of the latter. The informal but very effective
promotional aspect of the Chicago School sprang from the affinity group
of Knight's students and proteges that formed in the middle 1930s. The
principal members of this group were Milton and Rose Director Friedman,
George Stigler, Allen Wallis, and Henry Simons." As a result, "the
'baton passer' of the initial Chicago group . . . was Knight" (1982,
6-7).

Knight's greatness as a teacher manifested itself not in inspirational
lecturing or in instilling a specific body of knowledge in the students
and younger faculty who passed through the Chicago department. Indeed,
beyond the common antagonism of most leading members of the Chicago
school to plans for the scientific management
of society by government, Knight's followers in the Chicago school would
later reject many of his beliefs. Knight's greatest source of influence
was the spirit of radical questioning that he inculcated. Almost in the
manner of Socrates, Knight doubted every orthodoxy, often extending that
attitude to his own arguments (Raines and Jung 1986). As George J.
Stigler has commented, Knight was the original source of the Chicago
tradition that "great reputation and high office deserve little
respect." At Chicago, students were taught a "studied irreverence toward
authority" that had a "special slant: contemporary ideas were to be
treated even more skeptically than those of earlier periods" (1995, 98).
Following Knight, Chicago economists such as Milton Friedman, Stigler,
Ronald Coase, Gary Becker, and others would all show great independence
of mind. Chicago economists have consistently exhibited the courage to
advance ideas that at least initially might be offensive if not
outrageous to many holders of conventional opinion, including in many
cases those in the economic mainstream of American society.
Yet much that was initially rejected is now the conventional wisdom. All
in all, the impact of the Chicago school not only on American economics
but on all American social science and on government policy has been
nothing short of astonishing. Since 1975, thirteen winners of the Nobel
Prize in economic science have had a close connection, either as a
faculty member or as a recipient of the Ph.D. degree, with the
University of Chicago. In the 1990s, seven of the seventeen Nobel Prize
winners in economics (some years had multiple awards), including Coase
(1991), Becker (1992), and Robert Lucas (1995), were past or (mostly)
present faculty members at Chicago.1

Frank Knight and Chicago

Knight came to the Chicago economics department in 1927 and remained an
active member well past his retirement from full-time teaching in 1951
and until his death in 1972. Stigler wrote his Ph.D. thesis under
Knight, and Milton Friedman was a Knight student in the 1930s, later
describing him as "our great and revered teacher" (Friedman and Friedman
1981, 117). As the old saying went at Chicago, "there is no God, but
Frank Knight is his prophet" (Buchanan 1982, xi; see also Buchanan
1991).

Coase once related that he could conceive of himself matching the
achievements of many of the leading members of the economics profession,
but "I simply cannot imagine myself to be like Frank Knight. I guess
that amounts to saying that Knight is a genius." In a reminiscence on
his years as a graduate student taking Knight's courses in the 1940s,
Don Patinkin commented that Knight frequently spoke in a "rambling and
often obscure manner." Yet, because of the demands he made of his
students and the range of his thought, he was still "a great teacher"
whose lessons would continue to guide his students in their "thinking
many years later" (1981, 25-26). James

[1. Other present or past Chicago economists who won Nobel prizes in the
1990s were Merton Miller (1990), Robert Fogel (1993), Myron Scholes
(1997), and Robert Mundell (1999). Chicago economist James Heckman won
the prize in 2000.]

Buchanan, who studied under Knight in the 1940s, would later observe
that "I find myself confronted time and again with Knight's much earlier
and more sophisticated statement of the same thing [that I said later].
It is as if on rereading Knight I am retracing the sources of my own
thoughts, which themselves have somehow emerged without conscious
recognition that they are derived from him" (1982, x).
Knight did not consider himself a Christian-indeed, he was famous for
his antagonism to traditional religion (Kern 1988). Yet, he joined a
theologian to write a book (each author wrote separate sections) called
The Economic Order and Religion (Knight and Merriam [1945] 1979). When
the time came to deliver his presidential address to the American
Economic Association in 1950, Knight self-consciously labeled it his
"sermon" to the profession (Knight 1951). In teaching his economics
courses, Knight was, as Patinkin observed, prone to engage in "long
digressions on the nature of man and society-and God" (1981, 46). The
core social and economic problem in Knight's view was one of "discovery
and definition of values-a moral, not to say a religious, problem,"
which stood in great contrast to progressive aspirations to the
"value-free" scientific management of society (Knight 1936, 52).
Knight is best known to most economists today for his influential 1921
book Risk, Uncertainty, and Profit, in which he undertook one of the
first systematic explorations of a subject that has since become more
central to economic theory: the impact of informational uncertainties as
a determining factor in the organization of industry (Dewey 1990).
However, Knight would soon move on to become more of a moral philosopher
than a microeconomist (Sally 1997). Although current economists
typically know little about Knight as moral philosopher, it was in that
capacity that the key figures in the Chicago school of economics
encountered him and in which he exerted his greatest influence on its
future development.

If the ethics of self-interest is the core moral/religious issue for
economics, Knight's way of thinking about the place of self-interest in
society contrasted starkly with his fellow economists' thoughts on the
subject. Knight doubted the possibility of the scientific management of
society through the manipulation of self-interest in the market or
otherwise. Human reason, he believed, was a frail instrument, often
corrupted by the baser elements in human nature. In contrast to the
great majority of economists of his time, he thought that the economic
problem in society was ultimately a religious problem. The defense of
freedom-including the opportunity to express self-interest in the
market-must rest not on a scientific demonstration but on an adequate
moral/philosophical foundation.

For Knight, that foundation lay in the central moral importance he
ascribed to individual liberty. He had a strong libertarian strain, the
source of a powerful libertarian influence that continues at Chicago to
the present time. Yet he did not believe that individuals can exist
independent of a grounding in some culture or society; human beings, he
thought, are social by nature. Everyone has to be grounded in some
cultural system, historically including religion as a main source of
group identity. Nevertheless, given the inevitably wide range of
religious views and the potential for strong disagreements, the market
provides a place where people of different creeds can come together for
voluntary exchange and mutual benefit, an alternative much preferable to
the wars and other terrible conflicts of past human history, often at
their most destructive when fought in the name of religion.
If Knight's views were unusual for an economist of his time, they were
less novel than it appeared to many of his professional contemporaries.
Indeed, in a secular form, Knight was expressing a classic Christian
view of fallen man, beset by original sin. In a long-standing Christian
tradition (if not the only such tradition), the existence of private
property and the marketplace has been seen as an unfortunate but
necessary concession to the pervasive presence of evil in the world. In
the past in the Garden of Eden and in the future in heaven, there will
be no private property (or government). In the current world infected by
sin, private property and the pursuit of profit are the best means of
maintaining a semblance of order in society. As Richard Schlatter
explains, a longstanding Christian view holds that "since the fall [in
the Garden] the natures of men, all of them depraved, make necessary
instruments of social domination. The division of property, which gives
some men a power over the lives of others, is one such instrument"
([1951] 1973, 35).

For Knight, even a priesthood-of economists or others-cannot be exempt
from the general human condition; the professional experts will be
sinners as well. Knight is the beginning of a fundamental break of the
Chicago school with the economic mainstream of the time, a new
assumption that self-interest will be expressed not only in the
marketplace but in the actions of government and indeed perhaps in every
area of society. It is a secular form of an old view, characteristic of
Calvin and other Protestant reformers, that sin has fundamentally
invaded every aspect of human existence. Although Roman Catholic
theologians also recognized the centrality of sin in the world, they
tended to express considerably greater faith in human reason and in the
possibilities for rational striving toward improvement of the human
condition.

Deluded Progressives

The key economist in the founding of the American Economic Association,
Richard Ely, argued early in his career (he later would be more cautious
in his rhetoric, although his core values would not change much) that
the organizing principle of social behavior should be the biblical
commandment that "Thou shalt love thy neighbor as thyself." Thus, it was
impossible to "serve God and mammon; for the ruling motive of the one
service-egotism, selfishness-is the opposite of the ruling motive of the
other-altruism, devotion to others, consecration of heart, soul and
intellect to the service of others." For Ely in the Social Gospel phase
of his life in the 1880s and 1890s the chief motivating force in the
world, even in labor and business, must be "love" of fellow human beings
rather than the "self-interest" that most economists had long favored
(Ely 1889, 1, 6-7).

Ely's attitudes in this respect were representative of those of many
leading intellectuals of the American Progressive movement (commonly
dated from 1890 to 1920), often associated with the Social Gospel
movement (Hopkins 1940). For Knight, this outlook was just one example
of how Progressive intellectuals had substituted "romantic" thinking for
a realistic approach to the human condition.2 It is impossible, he said,
to conceive of the application of "the 'love' doctrine" as a guiding
economic principle "over, say, the population of a modern nation-and, of
course, it must ultimately be over the world since, for a world religion
[such as Christianity], national boundaries have no moral significance"
(1939, 126-127, 129-131).

Similarly, Knight strongly rejected the economic determinism
characteristic of American Progressive thought and the resulting hopes
for a radical improvement in the condition of the world (perhaps
attaining a state of affairs in which "love" would in fact rule) if the
economic problem could ever be finally solved. As he stated, "there is
no reason to believe that if all properly economic problems were solved
once for all through a fairy gift to every individual of the power to
work physical miracles, the social struggle and strife would either be
reduced in amount or intensity, or essentially changed in form, to say
nothing of improvement-in the absence of some moral revolution which
could by no means be assumed to follow in consequence of the change
itself " (1939, 63). Thus, as Knight saw matters, a core assumption of
the Progressive gospel-that economic events are the driving forces in
history-was a serious misreading of the human condition. The presence of
sin in the world cannot be abolished so easily as by the mere
achievement of a state of great material abundance. As Knight once put
the matter,

The idea that the social problem is essentially or primarily economic,
in the sense that social action may be concentrated on the economic
aspect and other aspects left to take care of themselves, is a fallacy,
and to outgrow this fallacy is one of the conditions of progress toward
a real solution of the social problem as a whole, including the economic
aspect itself. Examination will show that while many conflicts which
seem to have a noneconomic character are "really" economic, it is just
as true that what is called "economic" conflict is "really" rooted in
other interests and other forms of rivalry, and that these would remain
unabated after any conceivable change in the sphere of economics alone.
(1939, 63-64)

In the grand scheme of things, if one motive had to be emphasized,
rather than "love," that motive for Knight would be power. The "solemn
fact is that what people most commonly want for themselves is their 'own
way,' as such, or especially power"

[2. This kind of thinking was still widespread in Christian social reform
circles even in the late twentieth century. Max Stackhouse and Dennis
McCann comment that "all too many religious leaders still cling to the
belief that capitalism is greedy, individualistic, exploitative and
failing; that socialism is generous, community-affirming, equitable and
coming; and that the transition from the one to the other is what God is
doing in the world" (1991, 44).]

(1939, 131). Knight sometimes chastised free-market economists,
including his own Chicago colleagues, for putting too much emphasis on
standard economic motives. In their thinking, "the main argument for
laissez-faire was instrumental . . . it was intended to increase
efficiency"-not so very different in this respect from the Progressive
"gospel of efficiency." For Knight, freedom instead means a maximum of
power for an individual to control his or her own actions, and this
power must be "an end or value in itself," not something merely
"instrumental to efficiency" (1939, 67). His view was closer to a
libertarian than a mainstream economic way of thinking.
Indeed, separating himself clearly from the economic mainstream of his
time, Knight believed that "men actually prefer freedom to efficiency,
within limits; and both our highest ideals and our laws and institutions
recognize that they ought to do so if they do not." Knight was even
prepared to argue that people "may even rightly be forced to be free"
(1945, 100). To submit to power was for Knight to succumb to the
temptations of a modern devil-to choose sin over salvation. No one
should be allowed, any more in modern times than in days of old, to make
that choice.

For Knight-somewhat paradoxically in light of the obvious, powerful
influence of Christianity on his own thinking-one of the main threats to
freedom lay in the Christian religion (Kern 1988). Indeed, the "history
of Christianity" shows that the role of its teachings "has been to
sanction established morality, law, and authority, not reform, at least
in any constructive or progressive sense." In the Middle Ages, the Roman
Catholic Church "became a theocracy" and demonstrated as much concern
for preserving its own power as any kings or other secular authorities
(Knight 1944, 332). Once in power, Christianity forgot all its core
messages of love of fellow human beings and became a "violently
intolerant" religion, given to episodes of fierce persecution of heresy
and oppression of perceived enemies. Knight noted the "familiar fact"
that for many centuries "the Church never condemned or officially
opposed slavery" (1939, 125).

Whereas the Progressive views of the mainstream of the economics
profession followed in the natural-law tradition of emphasizing a
rational world, Knight was particularly hostile to the ideas of natural
law central to much of the development of Roman Catholic theology over
the centuries. He never made any secret of his special dislike for the
Roman Catholic Church. Natural-law concepts, he argued, had been
"bandied about since the earliest beginnings of the European
intellectual tradition," but they had mainly served "to beg the question
in favor of any position which a particular writer or school happened to
wish to defend or promote." At one time or another, leading theologians
of the time had declared rigid social castes, rule by absolute
authority, and various other forms of oppression to conform to the laws
of nature. Knight concluded that "natural law has served as a defense
for any existing order against any change and as an argument for change
in any direction" (1944, 320). The whole concept of natural law, in
short, was for Knight nothing short of an intellectual scandal- the
perverting of reason rather than its reaching to the greatest heights.

Scientific Oppression

If the Christian religion had often been false to its own founding
principles, in the modern age the Christian churches were no longer the
greatest threat to human freedom. As Knight explained, even as
Christianity has been much weakened in our own time, we now have to
confront a new "milieu in which science as such is a religion" (1936,
53). Knight would write in 1947 that the newer forms of religion
promoted a "gospel" that involved a kind of "salvation by science,"
following in the path of the old natural-law theories that promised a
path to salvation by following God's laws. The Progressive follies of
his day thus followed in a long tradition of religious pandering to
power and oppression in the name of the human faculty of reason (Hammond
1991).

The "plea of communism," Knight argued, with its claims to scientific
authority, is much "like that of Christianity," both asserting unique
access to final truth and in this way justifying "absolute authority,
ignoring freedom" (1951, 277). Communism is only one of the modern
totalitarianisms, each of which offers "a priesthood as the custodian of
[scientific] Truth, 'conditioning' each generation in helpless infancy
to unquestioning belief." These new modern forms of scientific
authoritarianism drew on "an inheritance" from earlier Christian
traditions of "conformity to a sacred law and obedience to consecrated
authority, Holy Mother Church and Holy Father King" (1951, 275).
Knight saw great danger in the tendency of most social scientists to
believe that human behavior is rationally explainable in terms of
behavioral laws and principles analogous to the laws discovered by the
physical sciences (Knight 1924). This belief would serve merely to open
the way to the expression of less-exalted motives: "Any attempt at use
of the unqualified procedures of natural science in solving problems of
human relations is just another name for a struggle for power,
ultimately a completely lawless one" (1948, 299). Just as the
construction of a dam to control a raging river depended on knowledge of
physical science, the advocates of the "scientific management" of
society sought to employ social science to bring human actions under
similar control (Gonce 1972). Given the frailties of the political
arrangements by which human beings governed themselves and the unruly
character of human nature, the end of human freedom was likely to be
among the consequences. The grand schemes of American Progressive
economists, increasingly dominant in the mainstream of the profession in
the years after World War II, rested on an assumption that the world is
a rational place, but they were bound to fail in the face of "human
nature being as irrational as it is" (Knight 1966, 166).

Knight directed his barbs at, for example, a leading work of sociology
published in 1947, one year before Paul Samuelson's introductory
textbook Economics first appeared, and reflecting a value system similar
to Samuelson's. Much as Samuelson throughout his career would seek to
convert economics to the methods of physics, the author of this
best-selling work of popular sociology, George Lundberg, believed that
"the problems of personal life, social relations, and political and
economic organization are of the same kind as the prediction and control
of events in (non-human) nature and so will similarly yield gradually to
the same mode of attack." In order to solve social problems, as Knight
characterized Lundberg's views, all that is needed "is that intellectual
leaders . . . be converted to the scientific point of view" in order
that "the social problem will be solved by the application of scientific
method" (Knight 1947b, 229, 235).

Such thinking is, however, as Knight labeled it, mere rationalist and
"scientistic propaganda" (1947b, 230). Indeed, the "fetish of
'scientific method' in the study of society is one of the two most
pernicious forms of romantic folly that are current among the
educated"-as bad as the natural-law follies of earlier Christian eras.
The plain fact is that a fully rational "science of human behavior, in
the literal sense, is impossible." Or again, a "natural or positive
science of human conduct" is "an absurdity" (Knight 1951, 258, 260,
261). A key reason that a science of society is impossible is that the
scientific analysis is not independent of the object under scrutiny.
Social scientists' ideas themselves can change the conception of society
and thus alter the very character of the object being studied.
Moreover, even if a true science of society were possible, it would not
be desirable (Knight 1925). An individual whose behavior is perfectly
and scientifically predictable is not a real human being. It is the
element of self-consciousness and the ability to choose-the existence of
"free will" in the classic Christian formulation-that distinguishes us
from the animal world. If everything is as determinate as in biology,
what is to separate a man or woman in moral terms from a dog or an
insect?3 It may well be, Knight commented, "the idiot" who has the
greatest amount of "happiness" among human beings, but the pursuit of
this kind of pleasurable sensation "is not what makes human life worth
while" (1925, 279). Many centuries earlier, Martin Luther had similarly
complained that the Roman Catholic Church had diminished its followers
and endangered human freedom by encouraging the faithful to believe that
life, even in such fundamental matters as the attainment of salvation in
the hereafter, could follow mechanical rules established by the church
hierarchy.

Rather, even if a human being is a biological entity governed by laws of
physical nature, "we must [finally] understand ourselves and each other
and act intelligently in relation to both, in other terms altogether."
Hence, the rational methods of science- yielding the legalistic decrees
of any church, Roman, scientific, or otherwise-can hold "no clue to the
answer to the essential problems of free society" and to the liv

[3. Among contemporary economists, one finds the clearest echo of
Knight's thinking in the writings of his former student James Buchanan.
For example, Buchanan considers that a person who behaves strictly
according to scientific laws "could not be concerned with choice at
all." Indeed, it is "internally contradictory" to speak of individual
"choice making under [scientific] certainty." If human dignity and
freedom require the power to choose, if the ability to do either good or
evil must be within the scope of individual decision making, then that
human behavior, Buchanan believes, cannot be strictly determined by
scientific rules. The scientific view of a human being as a mechanical
instrument denies a person his or her basic humanity (Buchanan 1979).]

ing of lives of genuine "spiritual freedom" (Knight 1948, 299). In
opposition to Roman Catholic theology, the Protestant Reformation
proclaimed that salvation is "by faith alone" and that faith is
ultimately a mystery only God can fathom. Even in the modern age, a
"free society" must act to "find norms somewhere outside the factual
space-time world" with which the rational-scientific method is
concerned.

In these regards, Knight was following in the tradition of old-fashioned
Protestant theology, so contrary to the rationalism of contemporary
economics, that original sin would inevitably undermine any human
efforts to impose systematic rationality on the world. One of Luther's
favorite sayings was the message of St. Paul that "the flesh lusteth
against the spirit and the spirit contrary to the flesh," and therefore
"so that ye cannot do the things that ye would do" (Kent 1997, 101).
Knight's thinking thus embraced a characteristic Protestant skepticism
of a world of beneficial human "works." He was opposed to the core ideas
of American Progressive thought, found in such influential works as
Samuelson's textbook Economics and in the optimistic faith that the
scientific management of society (a particular form of "works") is the
path to a future perfection of human existence. Contrary to the
rationalist theology of natural law or the mechanical prescriptions of
science, no given set of rules will ever show the way to heaven, on
earth or elsewhere. As seen by Ross Emmett, a leading contemporary
interpreter of Knight's moral philosophy, Knight's thinking reflected an
underlying theological view of the basic economic choices facing any
society:

In a society which has no recourse to the providential nature of a God
who is present in human history, the provision of a justification for
the way society works is a "theological" undertaking. Despite the fact
that modern economists often forget it, their investigations of the
universal problem of scarcity and its consequences for human behavior
and social organization is [sic] a form of theological inquiry: in a
world where there is no God, scarcity replaces moral evil as the central
problem of theodicy, and the process of assigning value becomes the
central problem of morality. Knight's (implicit) recognition of the
theological nature of economic inquiry in this regard is one of the
reasons for his rejection of positivism in economics and his insistence
on the fundamentally normative and apologetic character of economics. In
some sense, therefore, it is appropriate to say that Knight understood
that his role in a society which did not or could not recognize the
presence of God was similar to the role of a theologian in a society
which explicitly acknowledged God's presence. As a student of society,
he was obliged to contribute to society's discussion of the appropriate
mechanisms for the coordination of individuals' actions, and to remind
the members of society that their discussion could never be divorced
from consideration of the type of society they wanted to create and the
kind of people they wanted to become. (1994, 118-119)

Rediscovering Original Sin

In the modern era of the Western world, there have been three main
competing visions of the origins of human nature. The first is the
traditional Judeo-Christian view of human nature corrupted by original
sin since the fall of man in the Garden of Eden, leading most men and
women to lead lives of falsity, hatred, theft, and other forms of
corruption of their truer and better natures. The second is the
Darwinian view, in which human nature is determined by a genetic
inheritance that is the product of many thousands (or millions) of years
of biological evolution and in which human nature is a form of behavior
that has developed to promote the long-run survival of the human species
(any concepts of good and evil having no ultimate moral content, but
serving as instruments in the workings of the evolutionary process). In
the third main view, human nature is shaped by the current environment,
predominantly the economic environment-hence creating the possibility
that human beings might act on their own to abolish poverty and other
causes of bad behavior and thereby eventually to perfect the conditions
of existence on earth.

A great iconoclast (in the spirit of Luther and Calvin, we might say
"protester"), Knight seemingly rejected all of these explanations for
the existence of evil, which were grounded in a particular view of human
nature, yet he did not offer any explicit alternative of his own. One
must read behind the lines to find Knight's views of the human
condition. Indeed, despite all his outward hostility to Christianity,
his own theology-mainly expressed in an implicit fashion-followed
surprisingly closely in the Calvinist understanding of Christian faith.4
Although any notion of an actual fall in the Garden of Eden might be a
myth, human beings in Knight's view are corrupt creatures whose actual
behavior in the world corresponds closely to the biblical understanding
of the consequences of original sin.5

Knight's system of thought is so far outside the assumptions of the
economics mainstream that most economists have simply chosen to ignore
his moral philosophy, concentrating on the technical arguments at which
he was also skilled. His preaching is for many economists virtually
incomprehensible, at times a seeming muddle of confused if not
contradictory ideas, made all the more puzzling by the obvious fact of
his central role in the development of the Chicago school of economics.
This failure of so many economists to understand better the direction of
Knight's thought is powerful evidence, if any be needed, of the
secularization of American society and the present

[4. John Calvin was born in 1509 and followed soon after Martin Luther as 
a leading figure of the Protestant Reformation. The Calvinists adopted a 
more radical version of Luther's complaints against the Roman Catholic 
Church. The Puritans in England were among the leading branches of 
Calvinism in Europe. A pivotal figure in the history of Western religion, 
Calvin died in 1564 (Bouwsma 1988).]

[5. The Protestantism of the Reformation saw human behavior as especially 
corrupted by original sin, thus precluding any prospect of rationally 
directed action to achieve salvation. A typical Protestant view appears in 
the writings of Richard Hooker (1553-1600), who wrote of "the shame of our 
defiled natures," which would surely "shut us out from the kingdom of 
heaven" if not for the great mercy of God (qtd. in Kent 1997, 102).]

day ignorance of old-fashioned Protestant theology. Once it is
recognized that Knight's supposed antagonism to Christianity exists only
on the surface, his thinking may be easily understood as a secular
version of Protestant Christianity, grounded in a conception of the
ever-present and powerful workings of sin in the world.
His student and disciple James Buchanan comments: "Why was Knight so
different from his peers? My hypothesis is that he can be explained,
phenomenologically, only through recalling his roots in evangelical
Christianity." Knight was "a product of middle America, of the
agricultural economy of Illinois, of the late nineteenth century, of
evangelical Christianity." Buchanan attributes Knight's "intense
critical spirit" to his having been forced to wrestle in his youth with
conflicts and doubts about Christianity (1991, 246-47; see also Buchanan
1987). Here, I think Buchanan goes wrong. A better explanation is that
Knight's critical spirit was a direct manifestation, if now in a secular
form, of a characteristic Protestant outlook on the world. The Calvinist
and Puritan mentality in particular has been characterized by deep
introspection and a harshly critical attitude toward all claims to
authority in both worldly and spiritual domains. It is an outgrowth of
the Calvinist conviction that all human beings are deeply infected by
original sin and that our best efforts are not likely to be worth much,
especially among those who make the grandest claims (Forrester 1981;
Walzer 1974).

Thus, one might say that Knight's real religion was a secular Calvinism,
his own distinctive brand of "Calvinism minus God." For many leading
intellectuals of the modern age, brilliant insights in many areas have
been accompanied by a blindness with respect to the Judeo-Christian
roots of the underlying value system being expressed. For example, like
Calvin-and the English and American Puritans who followed in the
tradition of Calvinist theology-Knight saw a "positive moral value of
pain and suffering.. . . The need for this emphasis is indubitable;
human nature proverbially appears finer in adversity than in prosperity"
(Knight 1945, 39). Much as Puritan theology had preached that excessive
wealth was a temptation to sin and thus a danger to one's eternal soul,
Knight would remark on another occasion, "it is human nature to be more
dissatisfied the better off one is." The motive for providing one's
labor is often as much a pride of "workmanship" as any desire for more
income to obtain greater consumption. Knight found that mankind was in
general a "contrary critter" prone to present a "false exterior" (1951,
262, 269, 273).

Knight was expressing in a secular fashion a set of attitudes common in
American life in his formative years (Baltzell 1979). A study of rural
life in upstate New York near the end of the nineteenth century finds a
common belief that "virtue inhered in hard work." Work was not a burden
but a source of "contentment," as Paula Baker writes. In this
perspective, large "moral and economic benefits" accompanied the very
act of labor itself. Indeed, it would be no overstatement to say that
hard labor "provided the basis for virtue in the producer's republic"
(1991, 14). Such attitudes were far removed from-virtually incompatible
with-the narrow utilitarianism of mainstream economic thought, but were
manifested themselves in Knight's thinking. As Knight argued as early as
1923, it was necessary to reject "the assumption that human wants are
objective and measurable magnitudes and that the satisfaction of such
wants is the essence and criterion of value, and . . . on the basis of
this assumption to reduce ethics to a sort of glorified economics" (33).

Paul Conkin, an American student of the Puritan influence on American
history, finds that the Puritan view of the human condition as derived
from Calvinist theology has had great staying power in American life. As
he explains,
Briefly characterized, the typical Puritan, in 1630 or 1930, reflected
ideological assurance but was, at least in most areas and when at his
best, open to new ideas. He was very much a moralist, a political
activist.. . . He veneratedthe rule of objective laws or principles, but
he just as insistently believed in congregation and local democracy. He
usually reflected a sense of mission, even of a peculiar destiny, and an
atmosphere of seriousness and self-importance. Yet he was, or wanted to
be, pious, ever mindful of his dependence upon an overarching but never
quite fathomable reality, which he loved even without full
understanding. Although he sought redemption above all else, he had a
wholesome respect for the instrumentality of both material goods and
scientific knowledge, trying always to keep either from becoming
usurping ends. He demanded a conscientious stewardship of all men and
wanted all to have a useful and fulfilling calling or vocation. (1976,
3-4)

Although Knight does not fit every aspect of this description, on the
whole he matches it closely. In their own lives, he thought, few people
are likely to achieve a goal of happiness. The utilitarian philosophy of
life is empirically erroneous and metaphysically shallow. The modern
Calvinist, too, must recognize the inevitability of pain and
suffering-an outcome that, perversely, is likely to be aggravated by an
excessive emphasis on the pursuit of happiness as the central goal in
life. Indeed, an excess of utilitarianism is one of the devil's many
snares. Since the fall in the Garden of Eden, the rational faculties of
human beings have been undermined by their unruly emotions and their
easy susceptibility to various hatreds, jealousies, biases, and other
psychological maladies.6

Hence, as Luther and Calvin both preached and Knight also believed,
projects of self-improvement are likely often to achieve consequences
that are the very opposite of the intended effect, owing to the
frailties of the human condition. Ascetic discipline

[6. Speaking of Knight, Stigler says: "Economic theory prescribes the
efficient ways of achieving given ends: this to Knight was a
pathetically small part of human activity. The effects of acts often
diverge grotesquely from the desires which led to them. Wants themselves
are highly unstable, and it is their essential nature to change and
grow. 'The Chief thing which the common-sense individual wants is not
satisfactions for the wants he had, but more, and better wants.' So man
is an explorer and experimenter, a seeker for unknown and perhaps
unknowable truths, a creature better understood through the study of
literature than by the scientific method" (1987, 58).]

rather than a pursuit of happiness should guide human conduct. From his
attendance of classroom lectures, Patinkin recalled "Knight's commenting
that from the long-run viewpoint, . . . denial of wants was the only way
that a definitive adjustment of wants to resources could be achieved;
for history had shown that Western society created new wants just as
fast (if not faster than!) it expanded the means of satisfying them"
(1981, 34).
In a recent commentary on Knight's economic philosophy, Richard Boyd
notes that Knight's thinking has "much more in common with Augustine
Christianity than it does with the [rationalism and utilitarianism of
the] Enlightenment" (1997, 537). Martin Luther himself had been an
Augustinian monk who despised Thomas Aquinas's rational and mechanical
(as Luther saw it) theology of natural law, instead looking-and followed
in this respect by many other Protestant reformers-to the earlier and
more pessimistic (with respect to sinful life in this fallen world)
Augustinian theology (Nelson 1991). As Boyd adds, Knight thus exhibited
a fundamentally different worldview than Adam Smith, Friedrich Hayek,
and Milton Friedman, all of whom believed more optimistically in the
"benefits of progress, development and economic efficiency" (1997, 537).

The Augustinian and Calvinist view contrasts greatly with the
Progressive economic mainstream view of rational utilitarians choosing
how to maximize their own happiness or with the view of a society acting
through a rational process of scientific management to perfect the human
condition on earth. In such matters and in coming down on the Calvinist
rather than on the Progressive and rationalist side, Knight was a modern
kind of Protestant fundamentalist, reacting against the thinking of
virtually the entire economics profession of his time.
Knight made his Calvinist proclivities clear in his unique manner of
justifying a classical liberal outlook on the world (Knight 1923). He
painted the following picture, so different from other economists'
aspirations to the scientific management of society: "While effort is
justified by good results, these are not expected ever to be satisfying.
The experienced reward is more the joy of pursuit than of possession. It
is recognized that the solution of any problem will raise more questions
than it answers, so that man is committed-'doomed . . .'-to strive
toward goals which recede more rapidly than he as an individual, or even
society, advances towards them. Thus life is finally, if one chooses, or
if one's temperament so dictates, a sort of labor of Sisyphus" (1945,
71).

In the broadest view, one might say that, intellectually and
theologically speaking, much of U.S. history has reflected a struggle
between the pessimistic Puritan view of fallen, sinful man and the
optimistic Enlightenment view of rational, utilitarian man. If the great
majority of American economists have fallen on the Enlightenment and
Progressive side of this divide, Knight was one of the rare exceptions.
If economics were truly a value-neutral undertaking, one would expect
that members of the economics profession would have developed a full
body of economic thought, with a significant investment of resources and
depth of technical analysis, based on Calvinist and Puritan assumptions.
If economists had wanted to avoid taking any sides on fundamental value
questions, they should have explored thoroughly the workings of
Calvinist economic models of the world. An economics that conformed to
Calvinist assumptions would have to be very different from mainstream
economic models of individual behavior.

Efficiency would not be the highest value because wealth would have to
be treated not as a benefit but as a temptation to sin-and thus to
depravity on this earth-and a danger to one's eternal soul. The benefits
of work would lie not in the goods and services obtained for consumptive
purposes; rather, in a true Calvinist economics, people would labor not
for the benefit of the consumption obtained but for the disciplining, by
hard work, of unruly minds and souls that are always in danger of
succumbing to the temptations of the devil. Technically speaking,
"utility" would be derived from the labor and other inputs. A potential
excess of consumption resulting from such labor would be a constraint (a
threat to one's eternal soul, potentially with disastrous consequences,
if constant vigilance were not maintained), rather than a desired
outcome in itself. The real economic problem would be to serve a
calling, to work long and hard, without producing so much wealth in the
process as to fall inevitably into temptation and sin. Furthermore, pain
and suffering in Calvinist theology (and in a valid accompanying
Calvinist economics) can often be benefits rather than costs, as Knight
commented of his own thinking.

All this would amount to almost a complete inversion of the foundational
assumptions of mainstream economics. That is to say, Progressive
benefits would systematically be Calvinist costs, and vice versa. To be
sure, economics is not a value-neutral subject, and few microeconomists
have ever shown any interest in developing the technical details of a
"countermicroeconomics" grounded in Calvinist and Puritan assumptions.
With respect specifically to American society, where the value grounds
have always been fiercely contested, economists have never sought to
conduct an empirical examination of the predictive capacities (or other
usefulness) of economic models grounded in Calvinist and Knightian
assumptions about the basic character of human motivation, as compared
to the predictive powers of conventional economic models grounded in
individualistic, rational, and utilitarian assumptions about human
nature.

Scientifically, all this is indefensible. Instead of being value
neutral, the economics profession has actually been defending a strong
value position. In building from only one view of human nature,
mainstream economists have in effect been asserting that this view is
the correct one.

Communities of Believers

For most mainstream economists, the issue of preference formation has
been considered to lie outside the bounds of economic analysis. The
structure of prefer-
ences-the utility function-is simply assumed to exist, wherever it may
have come from (and it could have come directly from God; it matters
little). Knight, however, argued that it is a "fundamental error" to
regard "the individual as given, and . . . the social problem as one of
right relations between given individuals" (1932, 84). Rather, the
problem of ordering society should be conceived as follows: "The social
problem in the strict sense . . . is purely intellectual-moral. All
physical activity involved in social-legal process is carried out by
individuals who act as the agents of society, in so far as they are true
to the trust confided to them. Social action, which is social decision,
uses as data both facts and cause-and-effect relations, pertaining both
to nature and to man. But the social problem is not one of fact-except
as values are also facts-nor is it one of means and end. It is a problem
of values" (1941, 134).

Such views led Knight to embrace a democratic politics of widespread
"discussion," a theme that appears over and over again in his writings.
Calvin and other Protestant reformers had much earlier denounced the
attempts of the Roman Catholic priesthood to impose authoritative and
binding interpretations of faith on all the members of the church;
instead, as the early Protestant reformers declared, each person must
come to his own understanding of religious truth, worked out in
discussion with fellow parishioners. Calvinism introduced a powerful
commitment to local democracy in the church. For Knight as well, the
citizenry will simply have to find a way to some common value basis for
social actions through internal political processes of deliberation,
however lengthy and cumbersome that social process of discussion may
turn out to be. New communities of believers-perhaps nowadays often
believers in secular religions-are no less needed today.

Whether organized on a market or any other basis, "society depends
upon-we may almost say that it is-moral like-mindedness" (Knight 1939,
55). For Knight, it was essential that this like-mindedness not be
dictated by any modern equivalent of the Roman bureaucracy of old, in
the current era most likely to be acting in the name of the
authoritative decrees of science. The truths of modern religion as well
must be reached from the bottom up, from the interactions of free
citizens in a democratic polity (Raines and Jung 1986).
A process of democratic discussion requires, to be sure, a whole host of
intermediate institutions between the individual and the wider society.
The process of discussion must yield "superindividual norms." It is no
help in finding agreement on these norms to hear from each person the
"mere expression of individual desires." Indeed, the carrying over of
the individualism of the free market into the realm of democratic
discussion would "intensify the problem" of bringing the discussion to
any fruitful outcome (Knight 1951, 266).

With rare exceptions, Knight found, individuals never exist independent
of some surrounding institutional and cultural context from which they
derive basic values and an identity. According to Knight, the term
individual as used in economic theory should in fact be regarded as a
shorthand for family.7 Mainstream economics has misconceived the social
problem of American society because it has taken its individualistic and
utilitarian models of human behavior too literally. We are all products
of our time and place, Knight said. The idea of the lone individual
creating (or obtaining in some manner) his own tastes and wants as an
independent act is truly a heroic fiction. Instead, we all live within a
specific "culture" that teaches common "taste and appreciation" that are
"more important than means of gratification" in determining our sense of
ourselves as persons and of our individual well-being (Knight 1948,
295).

Hence, for Knight, discussion in society is not about bargaining from
fixed individual preference positions to divide up the economic pie.
Rather, the whole point of political discussion is to change minds; as a
result of democratic deliberation, individual preferences should be
constantly revised, leading to the necessary convergence
("likemindedness") of values in the community. If much of the
theoretical apparatus of economics is of little use in a world of
constantly shifting preference structures, so much for the mainstream
economics grounded in the values of the American Progressive gospel.
As a strong defender of market freedoms, Knight in part blamed the
current advocates of the free market, including some of his own Chicago
colleagues, for the erosion of market freedoms and the wholesale turn to
European socialism and American Progressive principles that he saw
taking place in his time. For a while in the nineteenth century, there
had been a "religion of liberalism [that] had a positive social-moral
content." But somehow the value foundation of free markets had been
lost. "One of the main factors in the present crisis is that the public
has lost faith, such faith as it ever had, in the moral validity of
market values" (Knight 1939, 73). Or, as Knight similarly stated in
another context, "the real breakdown of bourgeois society is only
superficially economic; . . . it is rather political, since indisputably
it is the business of the political system to make the economic system
function; fundamentally, however, the breakdown is not structural at
all, but moral." Classical liberalism had made a basic "intellectual
mistake" in that it "failed to see that the social problem is not at
bottom intellectual, but moral" (1934, 39-40). And no adequate moral
defense of the free market was forthcoming at Chicago or among any other
group of economists in the twentieth century.
Knight argued that the typical economist's description of the market as
a "competitive" system has been "calamitous for understanding" of the
true merits of a market system.8 In his own thinking, the market is
ultimately desirable not because com

[7. Gary Becker follows closely in the tradition of Knight and the Chicago
school in that he directs an attitude of radical questioning toward all
the conventional values of society. However, if Knight still held to his
many statements in his writings, he would have to be severely critical
of Becker's recent economic approach to the study of the workings of
family life as an arrangement among autonomous individuals, each acting
within the family for his own benefit.]

[8. According to Stigler, Knight had an explicitly normative vision of the
case for the market, in contrast to most of his fellow economists: "For
most present-day economists, the primary purpose of their study is to
increase our knowledge of the workings of the enterprise and other
economic systems. For Knight, the primary role of economic theory is
rather different: it is to contribute to the understanding of how by
consensus based upon rational discussion we can fashion liberal society
in which individual freedom is preserved and a satisfactory economic
performance achieved. This vast social undertaking allows only a small
role for the economist, and that role requires only a correct
understanding of the central core of value theory" (1987).]

petition drives costs and prices down to the lowest feasible
levels-which puts the case for the free market in conventional
Progressive and instrumental terms of efficiency- but because the market
provides the one practical mechanism for resolving in a more
satisfactory way (a way that preserves individual freedom) the value
tensions that permeate any large and diverse society. Knight argues that
the advantages of the market should be understood in terms of promoting
a "pattern of cooperation" among people who come together on a
noncoercive basis for mutual advantage (1951, 265). In this way, even
people in a pluralist society who have fundamentally different belief
systems are able to work together without first having to reconcile
their values to some common set of norms.

Hence, as Knight put it, the market minimizes the role of power in human
interactions because in a market "there are no power relations." The
market enables each person "to be the judge of his own values and of the
use of his own means to achieve them" (1951, 258). In grounding actions
on mutual consent, the market leaves out any judgments of "selfishness"
or other factors of "moral quality or artistic taste" in determining
social interactions. A Christian can trade as easily in a market with a
Muslim as with a fellow Christian; if they had first been required to
agree on value-laden subjects such as religion, no exchanges might ever
have taken place.

Here again, Knight's views hark back to Christian origins. In Christian
theology, the existence of private property-and the necessity of markets
as well-is a product of original sin. In an ideal world, neither would
exist. In the current fallen world, property and markets give outlets to
human strivings for power and advantage. It may be an imperfect
solution, but it is better than the alternatives.
If Knight strongly favored the market over central state control, here
again he was manifesting the Calvinist quality of his thinking. As
compared to Roman Catholicism, Protestantism in its infancy was
fundamentally an individualistic religion in making each of the
Protestant faithful responsible for his relationship with God; salvation
was a matter of individual "faith alone." This strong individualism
eventually had profound social consequences outside the realm of
theology. The religious beliefs of the English Puritans laid the basis
for modern freedoms in the realms of both government (the democratic
system) and the economy (the free market). As the distinguished German
theologian Ernst Troeltsch would explain with respect to the great
impact of the Puritans in shaping the basic values and social
institutions of the modern age:

The great ideas of the separation of Church and State, toleration of
different Church societies alongside of one another, the principle of
Voluntaryism in the formation of these Church-bodies, the (at first, no
doubt, only relative) liberty of conviction and opinion in all matters
of world-view and religion. Here are the roots of the old liberal theory
of the inviolability of the inner personal life by the State, which was
subsequently extended to more outward things; here is brought about the
end of the medieval idea of civilisation, and coercive Church-and-State
civilisation gives place to individual civilisation free of Church
direction. The idea is at first religious. Later, it becomes
secularized.. . . But its real foundations are laid in the English
Puritan Revolution. The momentum of its religious impulse opened the way
for modern freedom. (1912, 125-26)

Conclusion

The Boston Puritans were also capable of hanging Quakers in the village
square for religious heresy, however. Even as Protestants were oppressed
elsewhere in Europe, Calvin's Geneva put limits on the tolerance of
diversity of religious expression. Protestantism encouraged each small
sect to believe fervently that it had found the one true faith;
dissenters were not only threats to civic harmony, but virtual (or
actual) agents of the devil. Persecution of sinners proved easy to
justify among the Protestant elect. The Protestant Reformation plunged
Europe into many disastrous wars for 150 years, with individual freedom
often a casualty. If Knight was ultimately unable to resolve fully the
tension between individual rights and freedoms (including the pursuit of
self-interest) and the claims to the common good of the community, it
must be said that he has had a lot of company in Protestant theology
over the centuries.

Gradually, later members of the Chicago school would recast the
Calvinist elements in Knight's economic thought in a more clearly
libertarian direction. As one authority on Puritan thought comments,
"the preponderance of modern libertarian theory-from French Huguenots,
the Netherlands, Scotland and England-came from Calvinists" (Conkin
1976, 18). Libertarianism may not have all the answers- libertarians
also experience a tension in resolving the claims of individualism and
the demands of community-but in clearly and explicitly rejecting the
orthodoxies of the American Progressive gospel and its prescription for
the scientific management of society, contemporary libertarian thought
opens the way to discussion of whole new governing philosophies.


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Acknowledgments: An earlier version of this article appeared as Working 
Paper #7/2000 of the International Centre for Economic Research, Turin, 
Italy. It is adapted from a chapter in my book Economics as Religion: From 
Samuelson to Chicago and Beyond (Penn State University Press, 2001).