People From Illinois

"If you are always frightened for yourself you can't act, and then life loses its purpose. You just have to tell yourself that, when you get right down to it, you don't matter all that much."

"Let me tell you something you haven’t learned yet, something you learn only by living awhile. As you get older, you find that life begins to wear you down. Doesn’t matter who you are or what you do, it happens. Experience, time, events—they all conspire against you to steal away your energy, to erode your confidence, to make you question things you wouldn’t have given a second thought to when you were young. It happens gradually, a chipping away that you don’t even notice at first, and then one day it’s there. You wake up and you just don’t have the fire anymore."

"We are doomed to repeat the mistakes of the past, and no amount of education gleaned from our propensity for self-destruction and misguided thinking ever teaches us anything. Not anything that we remember for more than a generation or two."

"What you need to do is take control of things. Don't wait for events to catch up with you; go and meet them head-on!"

"The trick of course was not to go just anywhere, but to go where they might accomplish something useful."

"There is nothing wrong with crying. Your feelings tell you who are. They tell what is important. Don't ever be ashamed of them."

"“If you think that Man is free to build a new life while the rest of the world drifts by, then you do not know anything of history!”"

"You think that Man can start again, do you, Shea? Well you might be quite surprised to learn that some things never change, and that the dangers of power are always present, even to a race that almost obliterated itself."

"You spend so much time wondering who you are, don't you think? You flounder about, searching for your identity, when most of the time it is plain as the nose on your face. You struggle with questions of purpose and need, and forget that the answers are found mostly inside yourselves."

"Hayek greatly praised Knight on several occasions. In 1951, he grouped Knight, with Ludwig von Mises and Edwin Cannan, as one of three primary transmitters of classical liberalism during the 1920s and 1930s. Even more significantly, Hayek wrote in the beginning of the “Acknowledgments and Notes” section of The Constitution of Liberty: “If I had regarded it as my task to acknowledge all indebtedness and to notice all agreements, these notes would have been studded with references to the work of Ludwig von Mises, Frank H. Knight, and Edwin Cannan.” Hayek referred to Knight eight times in The Constitution of Liberty. Notwithstanding Hayek’s praise and references to him, Knight ripped the book in a 1967 review."

"Frank Knight wrote some polemics against Slichter's textbook in The Journal of Political Economy in the early 1930s. He smelled some kind of heresy in Slichter. But Knight's discussion was methodological. He argued that old Slichter was a do-gooder who thought he could change human nature, and that governments can do some good. Hardened, experienced people, by contrast, know that people are cussed. I think there's a lot of merit in Knight, but a lot of demerit, too. Whether his total effect on me was more bad than good I'm not sure. But from 1932 to 1936 I was besotted on Frank Knight. It's not true, I'll say categorically, what Milton Friedman at one time tried to sell: that there was a very subtle Chicago oral tradition on the demand for money and monetary theory. Read Robertson's handbook on Money, and you will have plumbed the depths of Chicago's monetary sophistication."

"Like Mises, Knight owes his original reputation to a theoretical monograph; notwithstanding an early lack of recognition, the latter’s Risk, Uncertainty and Profit (1921) eventually became, and for many years continued to be, one of the most influential textbooks on economic theory, although it had not originally been designed as such. Knight has since written a great deal on questions of economic policy and social philosophy— mostly in articles the majority of which have since been republished in book form. The best-known, and perhaps also the most characteristic, volume is The Ethics of Competition and Other Essays (1935). Knight’s personal influence, through his teaching, exceeds even the influence of his writings. It is hardly an exaggeration to state that nearly all the younger American economists who really understand and advocate a competitive economic system have at one time been Knight’s students."

"Knight's monograph The Economic Organization (1933) was prepared in the mid-1920s while Knight was at the University of Iowa and was later duplicated for student use at Chicago... It contains the elements of theory that helped to establish for Chicago its pre-eminence in neoclassical economics. While, according to Buchanan, there was little in the monograph that was wholly original, its value was in its emphasis on key points, its clarification of ambiguous concepts and notions, and its integrated approach to the economy as a social organization. According to Buchanan, several generations of undergraduate students at Chicago obtained their vision of the totality of the economic process only after encountering Knight (and Simons)."

"Knight is the first to use the circular-flow diagram as a means of explaining the way in which the interaction of individuals and businesses in goods and factor markets simultaneously solve all the functions required for effective social organization (Knight 1951, pp. 61–6). Prices provide a measure of the social importance of goods and services (albeit ‘not a true index of social importance according to any recognized ethical standard’), ensure that productive resources are allocated to the production of goods and services which place the highest value on them, and simultaneously distribute income across the productive resources accordingly. ‘The principal connection between the price system and social progress’, meanwhile, ‘is mediated by the phenomenon of interest on capital’ (pp. 63–5)."

"To Knight the task for economists (and for social philosophers) is not to be located at the extensive margin of "science." The task is to be located squarely at the level of elementary common sense. No sophisticated analysis is required to recognize that legally-enforced wage floors cause unemployment or that inflation cannot increase production in any long-term sense. But many men are prejudiced and romantic fools."

"[The Economic Organization by Frank Knight provided] the elements of theory that helped to establish for Chicago its eminence in neoclassical economics."

"A civilization which is dominated by this matter-of-fact insight must prevail against any cultural scheme that lacks this element. This characteristic of western civilization comes to a head in modern science, and finds its highest material expression in the technology of the machine industry."

"[In 1932, Lionel Robbins declared economics ‘the science of choice’ (Robbins 1932). In the same year, when students at the University of Chicago opened their social sciences course reader, they read Knight’s response:] Such definitions come too near to saying that economics is the science of things generally, of everything that men are for practical reasons interested in. Such a definition is useless and misleading"

"In Professor Pigou's study the argument that free enterprise lead to excessive investments in industry having relatively upward-sloping cost curves is developed with the aid of concrete example, the case of two roads; Suppose that between two points there are two highways, one of which is broad enough to accommodate without crowding all the traffic which may care to use it, but is poorly graded and surfaced; while the other is a much better road, but narrow and quite limited in capacity. If a large number of trucks operate between the two termini and are free to choose either of the two routes, they will tend to distribute themselves between the roads in such proportions that the cost per unit of transportation, or effective returns per unit of investment, will be the same for every truck on both routes. As more trucks use the narrower and better road, congestion develops, until at a certain point it becomes equally profitable to use the broader but poorer highway."

"Economics and ethics naturally come into rather intimate relations with each other since both recognizedly deal with the problem of value."

"The Ethics of Competition is a book of Frank H. Knight's writings on a common theme: the problem of social control and its various implications. Knight believed in free economic institutions but was also aware that the competitive economic system could be improved. One of the central figures of neoclassical economics in the twentieth century, Knight pursued a lifelong campaign against irrationalities of nationalism, religious fanaticism, and group conflict, while conceding that these were fundamental orientations of human action that might yet frustrate his own work as an economist. While Knight vigorously defended human freedom and the liberal order, he also was sufficiently moved by the shortcomings of liberalism as to condemn it as rife with abuse."

"Of the American institutionalists, his most generous comments concerned Commons’s work, work that he regarded as hopelessly unsystematic but highly ‘suggestive and valuable’"

"[We may view the] economic organization as a system of prize relations. Seen in the large, free enterprise is an organization of production and distribution in which individuals or family units get their real income, their "living," by selling productive power for money to "business units" or "enterprises", and buying with the money income thus obtained the direct goods and services which they consume. This view, it will be remembered, ignores for the sake of simplicity the fact that an appreciable fraction of the productive power in use at any time is not really employed in satisfying current wants but to make provision for increased want-satisfaction in the future; it treats society as it would be, or would tend to become, with progress absent, or in a “static” state."

"[Weber] is the only one who really deals with the problem of causes or approaches the material from that angle that can alone yield an answer to such questions, that is, the angle of comparative history in the broad sense."

"Most striking feature... is the author’s failure to understand the elementary mechanics of the competitive economic organization."

"Nor are the general laws of economics "institutional." They work in an institutional setting, and upon institutional material; institutions supply much of their content and furnish the machinery by which they work themselves out, more or less quickly and completely, in different actual situations. Institutions may determine the alternatives of choice and fix the limits of freedom of choice, but the general laws of choice among competing motives or goods are not institutional unless rational thinking and an objective world are institutions, an interpretation which would make the term meaningless. Economic activity consists in the use of certain resources by certain processes, to produce "wealth." The content of the concept wealth is largely institutional, and the resources available and processes known and used at any place and time for producing wealth are in a sense historical products; but there are general laws of production and consumption which hold good whatever specific things are thought of as wealth and whatever productive factors and processes in use."

"In spite of all the foregoing, there is a science of economics, a true, and even exact, science, which reaches laws as universal as those of mathematics and mechanics. The greatest need for the development of economics as a growing body of thought and practice is an adequate appreciation of the meaning, and the limitations, of this body of accurate premises and rigorously established conclusions. It comes about in the same general way as all science, except perhaps in a higher degree, i.e., through abstraction. There are no laws regarding the content of economic behavior, but there are laws universally valid as to its form. There is an abstract rationale of all conduct which is rational at alt, and a rationale of all social relations arising through the organization of rational activity."

"Since economics deals with human beings, the problems of its scientific treatment involves fundamental problems of the relations between man and his world. From a rational or scientific point of view, all practically real problems are problems in economics. The problem of life is to utilize resources "economically," to make them go as far as possible in the production of desired results. The general theory of economics is therefore simply the rationale of life. - In so far as it has any rationale! The first question in regard to scientific economics is this question of how far life is rational, how far its problems reduce to the form of using given means to achieve given ends. Now this, we shall contend, is not very far; the scientific view of life is a limited and partial view; life is at bottom an exploration in the field of values, an attempt to discover values, rather than on the basis of knowledge of them to produce and enjoy them to the greatest possible extent. We strive to "know ourselves," to find out our real wants, more than to get what we want. This fact sets a first and most sweeping limitation to the conception of economics as a science."

"There is no other science where judgements are tested in blood and answered in the servitude of the defeated, where the acknowledged authority is the leader who has won or who instills confidence that he can win."

"Henry C. Simons... his pamphlet, A Positive Program for Laissez Faire, offered a new and common basis for the aspirations of America’s young liberals. Hopes for a systematic and comprehensive work from Simons were disappointed; instead, he left a collection of essays which appeared in 1948 under the title Economic Policy for a Free Society. This book became very influential owing to its wealth of ideas and to the courage with which Simons discussed such delicate problems as trade unionism. Today, the nucleus of a group of like-minded economists—no longer confined to Chicago—is formed by Simons’ closest friend, Aaron Director, and two of the best-known younger American theoreticians, George Stigler and Milton Friedman. Director has edited Simons’ papers and carried on his work."

"It will by the way be of interest to you that the main goal of my America trip was an attempt to arrange in Chicago a larger study about the question as to what changes are necessary in the “legal framework” in order to make the competitive economy effective. Unfortunately the man on whom my plans were mostly centered, Henry Simons, died suddenly and I do not know yet if the project can be continued despite that. The idea was a positive complement to my book."

"Eliminate all forms of monopolistic market power, to include the breakup of large oligopolistic corporations and application of anti-trust laws to labor unions. A Federal incorporation law could be used to limit corporation size and where technology required giant firms for reasons of low cost production the Federal government should own and operate them... Promote economic stability by reform of the monetary system and establishment of stable rules for monetary policy... Reform the tax system and promote equity through income tax... Abolish all tariffs... Limit waste by restricting advertising and other wasteful merchandising practices."

"His circle included the most prominent strategists of the period: Bernard Brodie, Albert Wohlstetter, and Thomas Schelling, among others. Virtually every substantative argument Kahn made about deterrence could be found in pages written by these men. OTW (On Thermonuclear War) was not a grotesque sideshow."

"Brodie wasn't inhibited or shocked by matter publicists in and out of RAND flaunted as the most advanced, most modern of developments. After all, he wasn't ashamed to talk to his colleagues about his psychoanalysis. He was too snugly burrowed in his liberal arts to enjoy the gyrations of simulation. His instruments of research were antiquated: no computers, no interdisciplinary teams, just his noggin, the library, table-talk, and the occasional colloquy."

"Military doctrine is universally, and has been since the time of Napoleon, imbued with the "Spirit of the Offensive." There are some very good reasons for this, which we shall review elsewhere. As with many other ideas which have a sound basis in reason, constant and fervent reiteration has created distortions, like the attitude, for example, which regards a healthy respect for enemy capabilities as defenseminded and hence ignoble."

"Clausewitz to be sure, had gone out of his way to point out that armies even when commanded by Napoleon, had rarely defeated opposing armies of as much as twice their size-thus indicating a certain boundary on the influence not only of morale but also of skill in generalship. And when greatly superior forces were defeated by lesser ones, Clausewitz hinted, it was usually because of as much owing to gross incompetence on one side as to exceptional competence on the other. Let us acknowledge the genius of blunder as well as the genius of correct action! The former appeared at least as often as the latter and has had at least as much influence on history."

"Instances of grave tactical blunders are certainly not lacking in the history of war, but it is characteristic of tactical errors that tend to be self-exposing, if not in relation to some theoretical ideal then at least in relation to the best the enemy can do. In the past, it has usually been possible for strong nations to recover from them, even if at a heavy cost in blood and possibly strategic position. Strategic errors may or may not expose themselves in some obvious fashion during the course of a war, or even afterwards, and they are therefore much less likely to damage the reputations of those responsible for them."

"Necessity, which frequently exists only in the mind, is less often the mother of invention than of obstinacy, and the obstinacy of those three years exacted from France a penalty which continued to exert its effects over the years, especially in World War II, and which cannot be fully summed up even now."

"Yet the only empirical data we have about how people conduct war and behave under its stresses is our experience with it in the past, however much we have to make adjustments for subsequent changes in conditions."

"In wars throughout history, events have generally proved the pre-hostilities calculations of both sides, victor as well as loser, to have been seriously wrong."

"Soldiers usually are close students of tactics, but rarely are they students of strategy and practically never of war."

"It seems to me that the technique of gaming does at least two things, both of which are extremely important. One is that it tends to make a reality out of the potential and also the intentions nominally ascribed to the enemy. I have had the privilege of studying over the years a number of so-called "strategic studies," and I have often been amazed at the degree to which they are permeated by what one can only call "wishful thinking." There will often be on the first page a list of stated assumptions or postulates which will say something like the following: "(1) The enemy is very intelligent; (2) He has the initiative." When you turn the pages, however, the enemy has ceased to be intelligent, and he has also ceased to have initiative. War gaming does not let you get away with that."

"We will be making a sufficient but necessary contribution if we simply jar the prevalent complacency on the doctrine of shoot-from-the-hip-and-empty-the-magazine."

"American communities require that new housing meet quality requirements that are very high by world or even Western European and Japanese standards. These requirements are designed by middle-class architects, planners, and citizens in conformity with what they believe is decent housing. But their concept of decency far surpasses what is necessary for human health and safety. Consequently, all new American dwellings are too costly for low-income people to occupy without direct subsidies. But subsidies are provided for only a few of the many households with incomes low enough to be eligible for them. So poor people live in unsubsidized older dwellings."

"I have heard a few leading scholars in public choice express the view that the first Nobel Prize for contributions to public choice should have gone to Anthony Downs. I think it is fair to say that his An Economic Theory of Democracy (1957) has had a bigger impact than The Calculus, particularly among political scientists. But I do not think that a Nobel Prize should be awarded for a doctoral dissertation, however brilliant the effort. Downs has made only a few contributions to the public choice literature following the 1957 book, and none of these has had much of an impact."

"The bottom line is that monetary policy is a lot harder in the post-crisis world. We have learned a lot from the past five years, but there is still much we do not know. Policymakers, including the new Federal Reserve chair, are going to need flexible minds, good research, and the wisdom of ordinary Americans if they are going to meet the challenges that lie ahead."

"Today we have great laboratories and individual research projects employing thousands of scientists, but the interrelation between these giant laboratories, and between them and the myriad of individual investigators, is still one of voluntary, and almost unconscious, co-operation. It is not based on central planning or hierarchic organization. But as any economist knows, the fact that there is no one who can give commands does not mean that there is no social organization."

"Call me a masochist but one of the great pleasures of being at George Mason is that I am regularly insulted by Gordon Tullock. You have to understand, however, that in my profession not to have been insulted by Gordon is to be a nobody. In anycase, here is one from yesterday. "Gordon," I asked, "do you think we should ban child labor?" "No, keep working." The other day Gordon asked me to read one of his papers and I pointed out a few typos. "Excellent," he said, "this will surely be your greatest contribution to economics." Gordon is prone to pressing people with difficult questions. One of my colleagues responded, "Gordon, I’m not that good at thinking on my feet." Without missing a beat Gordon pulled up a chair and said "well sit down and we’ll see how you do then.""

"Gordon Tullock, on the other hand, might be characterized as the somewhat cynical pragmatist, who set out to understand the world, not to change it. This side of Tullock is visible in his early paper on simple majority rule, and is perhaps most apparent in his work on rent seeking. These differences should not be pushed too far, however. Buchanan (1980) also contributed to the rent-seeking literature, and often has described public choice as “politics without romance.” One of the most dispiriting contributions to the public choice literature has to be Kenneth Arrow’s (1951) famous impossibility theorem. In a too little appreciated article, Tullock (1967b) demonstrated with the help of a somewhat torturous geometrical analysis, that the cycling that underlies the impossibility theorem is likely to be constrained to a rather small subset of Pareto-optimal outcomes, and thus Arrow’s theorem was “irrelevant,” a rather happy result, and one which anticipated work appearing more than a decade later on the uncovered set. In Chap. 10 of Toward a Mathematics of Politics, Tullock (1967a) engages in a bit of wishful thinking about constitutional design by describing how one could achieve an ideal form of proportional representation in a legislative body. He also was an early enthusiast of the potential for using a demand-revelation process to reveal individual preferences for public goods (Tideman and Tullock 1976)."

"Buchanan and Tullock went on to apply the customary neoclassical hypothesis of individual rational utility maximization to the whole area of collective choice. One of their novel assumptions, and one that was truly revolutionary in those days, was the idea that politicians and bureaucrats do not necessarily behave as “benevolent dictators” on behalf of the public interest, but rather display the common kind of purposive behavior. They pursue their own interests and they react to incentives just like anybody else. In this landmark study, Buchanan and Tullock also draw a crucial distinction between two different levels of collective decision making, namely the constitutional level and the level of ordinary, day-to-day politics. All of this defines the paradigm they would later apply to almost every field of public economics."