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This note offers new archival insight into a 1925 polemical exchange between Frank Knight and John Maurice Clark that was hosted in the pages of Journal of Political Economy. Although the exchange centered on the effects of overhead costs on marginal productivity theory and the so-called adding-up theorem, it also provided significant elements to assess the methodological differences between two of the most representative American economists of the interwar years.

In 1933, Lionel Robbins asked Frank Knight if he could republish Knight’s Risk, Uncertainty and Profit (RUP) in order for students at the London School of Economics to continue to have access to the book. He also asked Knight to write a preface to provide an update on Knight’s changing economic views. Between 1933 and 1957, Knight wrote four new prefaces for reprint editions of RUP outlining changes in his views. In the prefaces, he identified four aspects of the theory expounded in RUP that he came to reject: (a) the method of successive approximation; (b) the separation of production from distribution; (c) the tri-partite division of the factors of production; and (d) any notion of a period of production. These rejections placed him squarely in opposition to F. A. Hayek’s theoretical work. He also identified the key features he had sought to develop in a monetary theory that would oppose J. M. Keynes and John Hicks. At the same time, he sought to identify the new theoretical ideas he was developing, including an enterprise-based theory of market exchange, and the adoption of a unitary resource, called capital. He also pointed to the work in social philosophy that he had begun in the 1940s, especially the need for a combined approach to social science using economic theory, ethics and social philosophy. The prefaces came to serve as a bridge between Knight’s original theory and what he would argue at the conclusion of his career.

Our chapter discusses the myriad ways in which Frank H. Knight’s Risk, Uncertainty, and Profit (RUP) has been incorporated by different streams of scholarship dedicated to institutional analysis since 1990, when bibliometric evidence indicates a revival of interest in his classic work. Using citation analysis, the authors identify clusters of scholarship that build on Knight’s contributions, assessing which of his insights were absorbed by different subfields and how these have been connected to recent topics and concerns. The authors then qualitatively explore these results to throw new light on the recent history of institutional economics, using Knight’s RUP as a window into the evolution of (and inter-relations between) different research traditions that currently populate the field, including new economic sociology, comparative politics, evolutionary economics, entrepreneurial studies, environmental social sciences, international political economy, and the anthropology of finance. The authors conclude that Knight’s legacy remains unsettled, with different groups selectively absorbing a subset of his ideas and developing them in relative isolation from research conducted elsewhere. Nevertheless, boundary work connecting these separate areas reveals possible spaces for collaboration among scholars who study institutions building explicitly on Knightian insights.

The paper published below was prepared by Taylor Ostrander for Frank Knight’s course, Economic Theory, Economics 301, during the Fall 1933 quarter.

Iowa City is located on banks of the Iowa River in a gently rolling region in the eastern half of Iowa, about 250 miles west of Chicago. It was the state capital until 1858, when the government was moved to a more central location in Des Moines. In 1919, the year the Frank H. Knight family moved to Iowa City, it was a small university community of about 15,000. No doubt Knight and his wife Minerva found it a pleasant enough place to live and raise their young family. To Frank, the town and surrounding area must have seemed much like that of Bloomington, IL, near where he was born and raised. For the first few years in Iowa City the Knight family lived in an 1890s vintage house close to the campus, and just around the corner from a public elementary school.³