Keynes and Knight on uncertainty: peas in a pod or chalk and cheese?

Abstract

Abstract For many years, the ideas of Knight and Keynes have been widely understood to overlap greatly and they are presumed to have developed notions of uncertainty that deeply intersect, both describing a state where outcomes have non-probabilistic likelihoods. Furthermore, even their political philosophies are historically somewhat homogenised, both considered ‘liberals’. We critically review the historical records and writings of these key scholars with the purpose of dehomogenising their political philosophies, scientific epistemologies and their famous works on uncertainty, published in the same year—1921. We show that neither Keynes nor Knight has been considered fairly by history. Keynes, far from a liberal, was a political socialist who supposed that economic futures could be predicted rationally via deduced probabilities (in an abstract sense) and concluded that expert economists could and should engage in economic planning. Knight, in stark contrast, was something of a radical liberal, holding uncertainty and paradox to be the permeating fact of human existence, which implied, for Knight, significant political and economic complexities far beyond any planner. In short, Knight and Keynes held to radically different philosophic assumptions and, consequently, derived distinctive theories of uncertainty, much further apart than previously supposed. By more fully and accurately placing their ideas within the context of their ideological priors, we gain a stronger sense of how they truly understood the mechanics of economies.