Uncertainty, Profit, and the Limits of Markets

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The neoclassical market model is the overwhelming basis for contemporary views of markets as fair, efficient, or both. But is it an appropriate starting point? The article draws on Frank Knight’s 1920s work on the economics of uncertainty to show that the ideal of perfect competition conceals a tacit trade-off between equality and certainty. Largely undetected, this trade-off continues to govern financialized capitalist democracies, evading normative and political debate. By explaining how markets and firms resolve the problem of uncertainty, Knight shows that all supposed market benefits, even allocative efficiency, are not costless to society. More specifically, Knight argued that modern markets are premised on a tacit agreement between a handful of “daring” entrepreneurs and the “risk-averse” public: the former agree to carry the uncertainties of business-life in return for a substantially larger share of its power and rewards. Despite the highly static assumptions of neoclassicism, therefore, and its linked assumption of perfect knowledge, uncertainty is far from absent in modern economics. It is built into firms and markets and manifests itself as a steep social and material hierarchy.

Original languageEnglish
Pages (from-to)982-993
Number of pages12
JournalPolitical Research Quarterly
Issue number4
StatePublished - Dec 2022
Externally publishedYes

Bibliographical note

Publisher Copyright:
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  • Frank Knight
  • financialization
  • inequality
  • markets and justice
  • risk and uncertainty
  • theories of the firm

ASJC Scopus subject areas

  • Sociology and Political Science


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