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Quotation of the Day…

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.. is from page 268 of the 1971 University of Chicago Press edition of Frank Knight [2]’s monumental 1921 book, Risk, Uncertainty, and Profit [3] (footnote deleted):

With uncertainty absent, man’s energies are devoted altogether to doing things; it is doubtful whether intelligence itself would exist in such a situation; in a world so built that perfect knowledge was theoretically possible, it seems likely that all organic readjustments would become mechanical, all organisms automata. With uncertainty present, doing things, the actual execution of activity, becomes in a real sense a secondary part of life; the primary problem or function is deciding what to do and how to do it….

When uncertainty is present and the task of deciding what to do and how to do it takes ascendancy over that of execution, the internal organization of the productive groups is no longer a matter of indifference or a mechanical detail.

DBx: Among the most fundamental of the tasks that must be performed by each firm in a market economy is to decide what to produce and how best to produce it under conditions of uncertainty. Part of each successful firm’s organization – part of its structure – are processes, practices, and contractual arrangements that are meant to deal with uncertainty and change. Those that survive in competition can be reasonably supposed to be superior to those that do not. And so for outsiders to pass judgment on the operations, structure, and contractual arrangements of firms that have been forged in competitive markets is for outsiders to presume to know better than do the firm’s experienced managers – and, even more arrogantly, better than competitive markets themselves – how best to strike the trade-offs that are made necessary by the inescapable reality of uncertainty.

Nearly every antitrust suit against private firms is motivated by such a preposterous presumption.
….
My 1982 master’s thesis at NYU, directed by Israel Kirzner, was centered on Risk, Uncertainty, and Profit – a brilliant, path-breaking treatise that will be 100 years old this soon-to-arrive next year.

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