Adam Smith, Not J M Keynes or Frank Knight, Was the First Scholar to Make the Uncertainty – Risk Distinction Explicitly and Apply it Rigorously

Abstract

Adam Smith was the first academic in history to make an explicit, detailed Uncertainty – Risk distinction and apply it clearly in a number of worked out examples and applications consistently in his analysis of decision making in the Wealth of Nations on occupational choice, businesses such as mining and fishing, taxation, and foreign trade.

Other possible claimants will be covered briefly. Only an author’s published works will be considered in making an evaluation.

G. Boole, with his indeterminate (uncertainty) – determinate (risk-calculatable probabilities) approach of his 1854 The Laws of Thought, will be ranked second. Joseph Schumpeter, with his 1911 Theory of Economic Development contribution, is ranked third, while Keynes with his 1921 A Treatise on Probability, will be ranked fourth on tie breaks over Knight, with his 1921 Risk, Uncertainty, and Profit, given that Keynes’s unpublished Fellowship dissertations of 1907 and 1908 are substantially earlier than Knight’s unpublished doctoral dissertation of 1916. G L S Shackle’s approach is a non probabilistic approach which ignored the much earlier work of Smith, Boole, and Keynes.

Keywords: Uncertainty, risk, indeterminate, determinate, Smith, Keynes, Boole, Schumpeter, Knight

JEL Classification: B10, B12, B20, B22