Frank Knight

Quotes From

“Diminishing Returns from Investment” (1944)

• The distinction between maintenance and replacement is in most ordinary cases an arbitrary one.#
• Knowledge has no other unit of measurement than its cost, and if we are to speak of diminishing returns it must be in terms of a rate of yield on the investment.#
• Apart from technological retrogression, the only cause which can operate to produce diminishing returns is an absolute limitation on the supply of some productive agents (an infinite cost of reduplication, literal or by substitution).#
• The essential meaning of new investment under given conditions is the creation of any additional means which were previously known, for the satisfaction (or more complete satisfaction) of wants which were previously known, or in some sense “present.” The difference between change under given conditions and real innovation centers in the matter of new knowledge#
• All consumption goods are really productive agents; the only final product is utility or, more accurately, enjoyment or want-satisfaction.#
• In the production of laborers the matter of “quality” is far more important than that of quantity in the crude sense of numbers. A human being in the “raw” state would obviously be a liability, not an asset, and his economic value in later life must be imputed to expenditure (again on balance) in rearing and training. These facts mean that, in terms of economic realities, the “laborer” of any type is essentially a capital good; the (social) sacrifice of consumption invested in producing labor-capacity could have been used to create productive capacity in other forms.#
• The worst difficulty with the notion of “factors” [of production] is that only to a very limited extent are productive agents transferred “as they stand” from one “use” to another (however uses are distinguished). In the main, transfer is accompanied in all degrees by disinvestment and reinvestment. This fact makes the theory of capital indispensable to an understanding of qualitative changes, such as might occur in a quantitatively stationary economy, as well as to an understanding of growth (or retrogression). In connection with any social change involving reallocation of production, most productive agents become more or less assimilated to capital goods and have to be considered by the theorist as quantities of capital.#
• If new investment can be freely directed to all uses, i.e., embodied in all types of productive agents indifferently, it will not be subject to diminishing returns.#

“Capital, Time, and the Interest Rate” (1934)

• [It is a fallacy] that capital is produced (and reproduced in any sort of cycle) by labour or “primary factors” in any sense. This is palpably absurd; “labour,” “capital instruments,” and “land” are in the first place categories of no homogeneity within themselves and of extensive overlapping, and in the second place, however productive agencies may be classified, it is evident that each is produced and continuously reproduced (when at all) by the co-operation of all, including itself.#
• The quantity of capital in an existing thing depends on the rate of interest and its earning power in any field in which it may have earning power.#
• We may give a fairly realistic or defensible meaning to either the beginning or the end of a production process, but if we do identify either, it is never possible to say what would be meant by the other boundary… If production is regarded as a process occupying time, its only beginning is the beginning of time, and its only end is the end of time.#
• All capital is inherently completely mobile with respect to any change foreseen as to date and character at the time the investment is made… the mobility of capital is overwhelmingly a matter of planning for either a particular transfer or for mobility in the abstract, through general availability.#
• Income is the primary economic reality, wealth being merely a source of or title to future income.#
• As regards economic—not technical—rôle in production and distribution, no classification of productive factors has any validity.#

“AEA Presidential Address” (1950)

• The serious fact is that the bulk of the really important things that economics has to teach are things that people would see for themselves if they were willing to see.#Quoted in Daniel Klein, “A Plea to Economists who Favor Liberty” (2001)

“Intellectual Confusion on Morals and Economics” (1935)

• The main, most serious problem of social order and progress is beyond both and all these—the problem of having the rules obeyed, or preventing cheating. As far as I can see there is no intellectual solution of that problem. No social machinery of “sanctions” will keep the game from breaking up in a quarrel, or a fight (the game of being a society can rarely just dissolve!) unless the participants have an irrational preference to having it go on even when they seem individually to get the worst of it.#
• The economic man, knowing what he wanted and striving intelligently and ruthlessly to secure it in the maximum degree, would not be a social man and could neither come into existence in society nor live in society.#
• Practically speaking, to call a situation hopeless is identical with calling it ideal.#
• The familiar diagram showing the intersection of an ascending and a descending curve (typically called “supply” and “demand”) is a picture of the action of any two opposed elastic forces.#

The Economic Organization (1934)

• The cost of any alternative (simple or complex) chosen is the alternative that has to be given up; where there is no alternative to a given experience, no choice, there is no economic problem, and cost has no meaning.#Quoted in James Buchanan, Cost and Choice (1969)

The Ethics of Competition and Other Essays (1935)

• There are no laws regarding the content of economic behavior, but there are laws universally valid as to its form.#Quoted in George Selgin, Praxeology and Understanding (1990)

Risk, Uncertainty, and Profit (1921)

• We live in a world full of contradiction and paradox, a fact of which perhaps the most fundamental illustration is this: that the existence of a problem of knowledge depends on the future being different from the past, while the possibility of the solution of the problem depends on the future being like the past.#Quoted in George Selgin, Praxeology and Understanding (1990)