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History of Political Economy 36.3 (2004) 497-504
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Frank Knight, Worst-Case Theorizing, and Economic Planning:
Socialism as Monopoly Politics
Peter Boettke and Karen Vaughn (2002, 155–76) draw our attention to the important differences characterizing the respective cases made against socialist planning by Frank H. Knight, Ludwig von Mises, and F. A. Hayek. Whereas Mises and Hayek asserted that the impossibility of socialist economic calculation precluded any possibility of efficient socialist planning (see, e.g., Lavoie 1985 and Steele 1992), Knight (1938a, 867) remained agnostic toward the Mises-Hayek claim. Indeed, as Boettke and Vaughn (2002) correctly recognize, Knight thought pure economic theory—essentially the logic of choice—had little of any real consequence to say regarding the planning-versus-markets controversy (see, e.g., Knight 1936, 255 and 1938b, 268;  1982, 160). Knight insisted that the real problems of socialist planning lay entirely in the political realm. Intriguingly, Boettke and Vaughn (2002, 166) suggest that it is altogether unclear as to precisely what Knight thought would constitute a "good political argument" (emphasis added) against planning. Moreover, Boettke and Vaughn charge Knight with despising one particularly illustrious political argument: that provided in Hayek's The Road to Serfdom ( 1986).
I suggest that Boettke and Vaughn utterly misconstrue Knight's political critique of planning. In particular, Boettke and Vaughn inadequately [End Page 497] appreciate the worst-case logic underlying Knight's political critique. Indeed, the situational logic operative in Knight's critique of planning is rather more akin to Hayek's critique of socialism in The Road to Serfdom than Boettke and Vaughn suggest (see, e.g., Knight 1938a, 868–69 and 1952, 414–15). Despite the apparent similarity in their respective analyses, however, Knight provides a logically more compelling political critique of planning than does Hayek. Indeed, whereas Knight's worst-case (nascent public-choice type) critique of planning makes immediate intuitive sense, the situational logic posited in Hayek's Road to Serfdom appears predicated on some rather unsatisfactory suppositions regarding planner type.1
Knight's Worst-Case Insight: Socialism as Monopoly Politics
Knight charged that socialists are entirely under the sway of best-case theorizing (the benevolent-despot assumption so despised by public-choice theory). Best-case theorizing is essentially the view that the state, "conceived in the abstract as a benevolent and all-powerful agency—essentially as God rather than realistically as politicians—could order economic affairs rightly without generating new evils or incurring serious social costs" (Knight  1982, 159; emphasis added; cf. Knight 1938a, 868 and 1938c, 244). Best-case theorizing regarding planner type was endemic to both pro- and anti-planning sides during the socialist calculation debate (see, e.g., Levy 1990; Buchanan  1999, 88). Despite readily ceding that planning was superior to markets given a posited lack of self-interest on the part of the planners (see, e.g., Knight  1982, 160), Knight was equally insistent that the attractions of socialist planning wane dramatically once we allow the planners to rejoin the human race.2 [End Page 498]
Throughout the 1930s and 1940s, Knight had repeatedly warned that self-interested planners (homo economicus) would readily exploit the fact that socialist planning replaces the market economy (competitive or otherwise) with a giant monopoly (Knight 1935b, 205;  1982, 431). Knight's worst-case logic—planning as monopoly politics—provides a staple of the modern public-choice literature (see, e.g., Levy 1990; Shleifer and Vishny 1992; Boettke and Anderson 1997). The argument, of course, is simply the application of Gordon Tullock's (1967) canonical rent-seeking insight to the economics of socialism. That Knight was aware of the situational logic driving the modern public-choice critique of planning is clear:
Socialists themselves generally assume that there will be very much more monopoly under socialism, even in particular industries, to say nothing of the fact that all production would in the nature of the case be one gigantic monopoly in the hands of the government—but of course all are assumed to be...