These quotations give the essence of Professor Knight’s
theory. The fact of uncertainty means that people have
to forecast future wants. Therefore, you get a special
class springing up who direct the activities of others to
whom they give guaranteed wages. It acts because good
judgment is generally associated with confidence in one’s
judgment.“ '
Professor Knight would appear to leave himself open
to criticism on several grounds. First of all, as he himself
points out, the fact that certain people have better judgment
or better knowledge does not mean that they can only
get an income from it by themselves actively taking part
in production. They can sell advice or knowledge. Every
business buys the services of a host of advisers. We can
imagine a system where all advice or knowledge was bought
as required. Again, it is possible to get a reward from
better knowledge or judgment not by actively taking part
in production but by making contracts with people who
are producing. A merchant buying for future delivery
represents an example of this. But this merely illustrates
the point that it is quite possible to give a guaranteed
reward providing that certain acts are performed without
directing the performance of those acts. Professor Knight
says that “ with human nature as we know it it would be
impracticable or very unusual for one man to guarantee
to another a definite result of the latter’s actions without
being given power to direct his work.” This is surely
incorrect. A large proportion of jobs are done to contract,
that is, the contractor is guaranteed a certain sum providing
he performs certain acts. But this does not involve any
direction. It does mean, however, that the system of
relative prices has been changed and that there will be a
new arrangement of the factors of production.‘ The fact
that Professor Knight mentions that the “second party
would not place himself under the direction of the first
without such a guarantee” is irrelevant to the problem
we are considering. Finally, it seems important to notice
that even in the case of an economic system where there
is no uncertainty Professor Knight considers that there
would be co-ordinators, though they would perform only
a routine function. He immediately adds that they would
be “without responsibility of any sort,” which raises the
question by whom are they paid and why i It seems that
nowhere does Professor Knight give a reason why the price
mechanism should be superseded.
These quotations give the essence of Professor Knight’stheory. The fact of uncertainty means that people haveto forecast future wants. Therefore, you get a specialclass springing up who direct the activities of others towhom they give guaranteed wages. It acts because goodjudgment is generally associated with confidence in one’sjudgment.“ 'Professor Knight would appear to leave himself opento criticism on several grounds. First of all, as he himselfpoints out, the fact that certain people have better judgmentor better knowledge does not mean that they can onlyget an income from it by themselves actively taking partin production. They can sell advice or knowledge. Everybusiness buys the services of a host of advisers. We canimagine a system where all advice or knowledge was boughtas required. Again, it is possible to get a reward frombetter knowledge or judgment not by actively taking partin production but by making contracts with people whoare producing. A merchant buying for future deliveryrepresents an example of this. But this merely illustratesthe point that it is quite possible to give a guaranteedreward providing that certain acts are performed withoutdirecting the performance of those acts. Professor Knightsays that “ with human nature as we know it it would beimpracticable or very unusual for one man to guaranteeto another a definite result of the latter’s actions withoutbeing given power to direct his work.” This is surelyincorrect. A large proportion of jobs are done to contract,that is, the contractor is guaranteed a certain sum providinghe performs certain acts. But this does not involve anydirection. It does mean, however, that the system ofrelative prices has been changed and that there will be anew arrangement of the factors of production.‘ The factthat Professor Knight mentions that the “second partywould not place himself under the direction of the firstwithout such a guarantee” is irrelevant to the problemwe are considering. Finally, it seems important to noticethat even in the case of an economic system where thereis no uncertainty Professor Knight considers that therewould be co-ordinators, though they would perform onlya routine function. He immediately adds that they wouldbe “without responsibility of any sort,” which raises thequestion by whom are they paid and why i It seems thatnowhere does Professor Knight give a reason why the pricemechanism should be superseded.
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