The Common Sense of Economics and Divergent Approaches in Economic Thought

27 Pages Posted: 23 Nov 2020

See all articles by Peter J. Boettke

Peter J. Boettke

George Mason University - Department of Economics; Mercatus Center at George Mason University

Rosolino Candela

George Mason University - Mercatus Center

Date Written: November 21, 2020

Abstract

This paper contextualizes the contribution of Risk, Uncertainty, and Profit to the development of economic theory in the 20th century. Our argument in this paper is twofold. First, we contend that this book embodied what had been the common knowledge of early neoclassical economics prior to WWII. Secondly, we also argue that embroynic to Knight’s account of economics were two divergent approaches to economic thought that emerged in the post WWII. The first approach is what has come to be known as microeconomics, characterized by utility maximization under fixed price, income, and institutional parameters that approximate equilibrium. This first approach is distinct from a second approach, referred to as price theory, in which prices are not sufficient statistics, as in microeconomics, but operate as guides to consumption and production decisions under alternative institutional arrangements. This second approach represented the continuation of the mainline of economic thought from its classical and early neoclassical roots.

Keywords: Frank Knight; Microeconomics; Price Theory

JEL Classification: B31; B41; D80

Suggested Citation

Boettke, Peter J. and Candela, Rosolino, The Common Sense of Economics and Divergent Approaches in Economic Thought (November 21, 2020). GMU Working Paper in Economics No. 20-44, Available at SSRN: https://ssrn.com/abstract=3735105 or http://dx.doi.org/10.2139/ssrn.3735105

Peter J. Boettke (Contact Author)

George Mason University - Department of Economics ( email )

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Rosolino Candela

George Mason University - Mercatus Center ( email )

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Arlington, VA 22201
United States

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