Barreto Hist of Econ Thought

Knight on the Future of the Enterprise Economy (aka Capitalism)

A) Types of Social Organization • Traditional Economy • Autocratic Organization • Exchange System

“Its most interesting feature is that it is automatic and unconscious; no one plans or ever planned it out, no one assigns participants their roles or directs their future actions.”

B) Problems with Socialism

1) Lack of Growth in output

“The essential feature of the enterprise economy is that it theoretically and to a reasonable degree in fact places managerial decisions, i.e., production planning, in anticipation of consumers’ choices, in the hands of functionaries so situated that the major loss consequent upon any failure to make correct decisions impinges primarily upon the individuals responsible for them—those who make them, either directly or through agents whom they appoint and control.”

“Viewing society, then, as a want satisfying machine and applying the single test of efficiency, free enterprise must be justified, if at all on the ground that men make decisions, exercise control, more effectively if they are made responsible for the results of the correctness, or the opposite, of those decisions. If property were socialized, we should still have to concentrate the function of the actual making of decisions, but it would be in a far greater degree than now a routine task, with the remuneration independent of the results.”

“The great danger to be feared from a political control of economic life under ordinary conditions is not a reckless dissipation of the social resources so much as the arrest of progress and the vegetation of life.”

2) Lack of freedom • Heads of firms don’t rise and fall. Firms do not go bankrupt. Things are set. • Concentration of political and economic power is guaranteed to restrict dissent.

The last sentence of Risk, Uncertainty, and Profit: “[Capitalism] is not ideal, or even good; but candid consideration of the difficulties of radical transformation, especially in view of our ignorance and disagreement as to what we want, suggests caution and humility in dealing with reconstruction proposals.”