The Common Sense of Economics and Divergent Approaches in Economic Thought: A View from Risk, Uncertainty and Profit.

Journal of Institutional Economics, 2021, pp. 1-15, doi:10.1017/S1744137421000229

33 Pages Posted: 23 Nov 2020 Last revised: 6 Dec 2021

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: March 2, 2021

Abstract

This paper evaluates 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 after WWII. The first approach, what has
come to be known as microeconomics, is 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 not only represented the continuation
of the mainline of economic thought from its classical and early neoclassical roots. It also
embodies the basis for Knight’s understanding of uncertainty, profit and entrepreneurship, as well
as its implications for economic organization and social progress.

Keywords: Frank Knight; Microeconomics; Price Theory

JEL Classification: B31; B41; D80

Suggested Citation

Boettke, Peter J. and Boettke, Peter J. and Candela, Rosolino, The Common Sense of Economics and Divergent Approaches in Economic Thought: A View from Risk, Uncertainty and Profit. (March 2, 2021). Journal of Institutional Economics, 2021, pp. 1-15, doi:10.1017/S1744137421000229, 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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Mercatus Center at George Mason University ( email )

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Rosolino Candela

George Mason University - Mercatus Center ( email )

3434 Washington Blvd., 4th Floor
Arlington, VA 22201
United States

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