Between 1920 and 1950, a debate took place which defined the future of economics in the second half of the 20th century. The leading proponents in that debate were from Cambridge, England and Chicago; but it was not a debate between Cambridge and Chicago. On one side were John Maynard Keynes and Frank Knight; on the other, Frank Ramsey and Jimmie Savage.

Knight and Keynes believed in the ubiquity of radical uncertainty. Not only did we not know what was going to happen, we had a very limited ability to even describe the things that might happen. They distinguished risk, which could be described with the aid of probabilities, from uncertainty, which could not. In Knight’s world, such uncertainties gave rise to the profit opportunities which were the dynamic of a capitalist economy. Keynes saw these uncertainties as the primary source of the inevitable instability of such an economy.

Their opponents claimed that all uncertainties can be described probabilistically. And their opponents won. One reason, perhaps the main reason, was that a probabilistic world could be described axiomatically and mathematically. This was much more difficult in a world of radical uncertainty.

It is difficult to exaggerate the practical consequence of the outcome of that technical argument. To acknowledge the role of radical uncertainty is to knock away the foundations of finance theory and much of post-Keynesian macroeconomics – a consensus with glaring weaknesses, exposed by the financial crisis of 2008. Keynes and Knight were right, and their opponents wrong. And recognition of that is a necessary preliminary to the rebuilding of a more relevant economic theory.