Frank H. Knight (1885-1972), cofounder of the Chicago School of Economics, was one of the pioneers of the orthodox view today that profits come from entrepreneurial activity where profit is earned by forgoing current consumption, by taking risks, and by organizing production. This organization of production is not the manipulative process of Marx discussed yesterday. However, he did argue that economic organization has both advantages and disadvantages.
The biggest gain, Knight argued, comes from the specialization and utilization of natural aptitudes and leadership. He noted, “undoubtedly the largest single source of the increased efficiency through organization results from having work planned and directed by the exceptionally capable individuals, while the mass of the people follow instructions.” He explained that organization is near synonymous with the division of labour, with the fundamental problems being the assignment of tasks and the apportionment of rewards, which the modern economy does through free and voluntary exchange by individuals.
Organization also develops the skill and knowledge base of individuals, while on the other hand he explained, “specialization in itself, is an evil, measured by generally accepted human ideals.” It narrows the personality, and the “specialization of leadership means that the masses of the people work under conditions which tend to suppress initiative and independence, to develop servility as well as narrowness and in general to dehumanise.” This seems to be an echo of the Marxian view that workers are alienated, but it is more complex.
It is intriguing that Knight argues this way, since it can be argued that it is consistent with his realism that the workplace is not the place where workers are humanized, it is the place where they earn the money that allows them to be humanized in their life outside of the workplace. It should be noted that human imitative can sometimes create problems and jeopardize consistency and disrupt the process. The workplace is where we organize, coordinate and where necessary subjugate self to produce efficiently the product we all need or desire.
The four main tasks of this organized activity are to set standards to determine what things get produced and their quantity, the allocation of resources to the branches of production and their coordination, the distribution of the product, and lastly the provision for maintenance and future progress, understood in terms of resources, technology and wants.
This economic organization and production also brings another apparent disadvantage, that of interdependence of persons and groups. The production of a loaf of bread involves the production of the various ingredients, the “assembling” and packaging of loaves, distribution to the market, the invention of individuals who find new flavors, shapes and sizes to offer the market, and the interests and needs of the consumer in buying the product. These are various kinds of specialization that brings technical advantages to assembly and distribution, as Adam Smith had argued, but also creates interdependence.
This is seen most dramatically in times of strikes or accidental stoppages, but most critically Knight elaborated, in the “ebb and flow of prosperity, particularly the recurrence of business crises bringing widespread distress.” Thus in strikes and in times of depression these disadvantages come to the fore, showing our interdependence. If the van drivers go on strike then the product does not go out to market, and if the bread company goes out of business in recession then the farmer has no buyer and the van drivers have no product to deliver.
Thus, the production process is not the selling of labor, as Marx argued, it is a process of cooperation upon which we are all interdependent. Some of us have a better place, while others are not content. Some managers are well-paid but very unhappy, while some shopfloor workers are content to do a job and forget about it when they go home. There are many people who find fulfilment at work, often at the cost of enjoyment outside of the workplace, especially when they are “on call” or have to travel away from their families. For others, the intrusion of work is not welcomed and the workplace is simply a means to an end, where they walk outside the factory gates or drive out of the car park and leave all work cares and worries behind them. The role of the individual in this process cannot be neatly compartmentalized in the way Marx would have you believe.
However, we are left with the question of whether we are alienated, as Marx argued, or dehumanized, as Knight said. In Knights view, the human spirit is not tied to labor, nor are workers exploited. People are badly managed, managers are often short-sighted, and so on, but these are the foibles of human nature and cooperation. Knight brings into consideration what he sees as a law of conduct, that “when we are confronted with alternatives, quantitatively variable lines of action or experience, we tend to combine them in such proportions that the physically correlated amounts or degrees of each are of equal utility to the person choosing.”
He is clearly not taking a Marxian view, and argues that “In the popular mind, and of course especially in the Marxian and most other socialistic literature, it is viewed as an axiom that the owner of “capital,” or “the means of labor,” has the worker in his power. But the proposition is false or meaningless if employers are in competition with each other and act in accordance with economic motives. The distribution of economic power in a competitive society is simply the relative market values of the property or labor services offered to production by different individuals. And if monopoly is assumed, each group will be equally in the power of the other.”
Thus, labor is really a sacrifice of some desirable alternative to the use of one’s time and strength. If there is no alternative there is no sacrifice, and so Knight concluded there was no problem to resolve. The socialist argument fails to understand the relationship of property and labor within the system. People are freed from servitude and can form contracts, which is a great liberation. The spirit of capitalism, Knight believed, is one of being part of a constructive system, which replaced the previous acquisitive forms of economic organization, and which thrives because modern business is productive.
Capitalism is also the triumph of human invention and conquest over nature. The historical uniqueness of capitalist Europe is that it took technical advances of other civilizations and used them to lift each nation’s status from medieval to modern and eliminated slavery and servitude in the process. For Knight, the only alternative to capitalism is some form of servitude.
Knight always argued that capitalism is the best system we have, but that it is flawed because we as human beings are flawed, which is why social planning fails. He has both a positive and negative view of labor. In his negative view he makes the point about work dehumanizing, and it can be, but not in the way Marx argues and extends it into a holistic concept. Knight’s argument suggests that we can improve things. He argues that the economy and society generally can only be improved by dialogue, in order to address the problems created by our flawed nature.
Tomorrow I will argue that the workplace is continually improving, and it makes sense in terms of production and efficiency to engage employees through dialogue as persons, and to find new ways to humanize the productive process.