Frank Knight facts for kids

Frank Hyneman Knight (born November 7, 1885 – died April 15, 1972) was an important American economist. He spent most of his career at the University of Chicago. There, he helped start the Chicago School, a group of economists with similar ideas.

Many famous economists were his students. These include Milton Friedman, George Stigler, and James M. Buchanan, who all won the Nobel Prize. Another Nobel winner, Ronald Coase, said Knight greatly influenced his thinking. F.A. Hayek saw Knight as a key person. He helped keep ideas of classical liberalism strong in the 20th century. Classical liberalism focuses on individual freedom and limited government.

Paul Samuelson, another famous economist, called Knight one of the "American saints in economics". He was among several important American economists born after 1860.

Life and Career of Frank Knight

Frank Knight was born in 1885 in McLean County, Illinois. His parents were Julia Ann (Hyneman) and Winton Cyrus Knight. He earned his first degree from Milligan College in 1911. He then got more degrees from the University of Tennessee in 1913. Finally, he earned his PhD from Cornell University in 1916.

Most of his teaching career was at the University of Chicago. He was a special professor there, focusing on social science and philosophy. Knight was known as one of the world's top economists. He made big contributions to both economic theory and social ideas.

He is most famous for his book, Risk, Uncertainty and Profit. This book looked at the role of business owners in the economy. In 1950, he was the president of the American Economic Association. In 1957, he received the Francis A. Walker Award. This award is given to an American economist who has made the greatest contributions to economics.

Understanding Risk and Uncertainty

Knight's most famous work is his book Risk, Uncertainty and Profit (1921). This book was based on his PhD studies at Cornell University. In it, he made a clear difference between economic risk and uncertainty.

He explained that risk happens when you don't know the exact outcome. However, you know the chances (probabilities) of different outcomes happening. For example, you might know the chance of rolling a certain number on a dice. In these cases, you can use rules to make decisions, like trying to get the best expected result.

Uncertainty, on the other hand, is different. In uncertain situations, you don't just not know the outcome. You also don't know the chances or probabilities of what might happen. Knight argued that this kind of uncertainty creates economic profits. These profits cannot be removed even in a market with perfect competition.

Many economists today agree with Knight's idea about risk versus uncertainty. However, this idea hasn't led to a lot of new models or studies. Still, Knight's idea of uncertainty has been used in many important works. For example, John Maynard Keynes talked about it in his book on probability. Paul Davidson used it as a key part of the Post Keynesian school of economics.

Ideas on Social Costs and Roads

Knight also had famous discussions with another economist, A. C. Pigou, about social costs. Social costs are the total costs to society from an action, including those not paid by the person doing the action.

Knight also shared ideas about toll roads. He argued that private companies owning roads could set tolls. These tolls would help reduce traffic jams to a good level. He believed this was better than the government using tolls to deal with congestion.

He developed an idea that is now called Wardrop's Principle. This principle helps us understand how traffic flows. Imagine two roads between two places:

Suppose that between two points there are two highways, one of which is broad enough to accommodate without crowding all the traffic which may care to use it, but is poorly graded and surfaced; while the other is a much better road, but narrow and quite limited in capacity. If a large number of trucks operate between the two termini and are free to choose either of the two routes, they will tend to distribute themselves between the roads in such proportions that the cost per unit of transportation, or effective returns per unit of investment, will be the same for every truck on both routes. As more trucks use the narrower and better road, congestion develops, until at a certain point it becomes equally profitable to use the broader but poorer highway.

This means drivers will choose routes until the travel time or cost is about the same on all available paths. If one road gets too crowded, drivers will switch to another until things balance out.

Knight was also a co-founder and vice president of the Mont Pelerin Society. This was a group of economists who shared similar ideas about freedom and economics.

Knight grew up in a Christian family. However, he later became an atheist, meaning he did not believe in God.

Notable Works

• Risk, Uncertainty, and Profit, 1921
• The Economic Organization, 1933
• The Ethics of Competition and Other Essays, 1935
• The Economic Order and Religion, with T.W. Merriam, 1945
• Freedom and Reform: Essays in economics and social philosophy, 1947
• On the History and Methods of Economics: Selected essays, 1956
• Intelligence and Democratic Action, 1960

Awards and Recognition

• 1957: Francis A. Walker Medal from the American Economic Association
• 1961: Golden Plate Award from the American Academy of Achievement

See also

In Spanish: Frank Hyneman Knight para niños