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The concept of rationality is both the origination point and the Achilles’ heel of the study of economic theory. Two of America’s more important economists, J. A. Schumpeter and Frank H. Knight, held highly developed views of the rationalistic civilization and rational thought. Although considerable concordance is present in their visions of rationality, conceptual differences exist.

Rational behavior is, in many respects, like beauty in that its meaning is defined by the extent to which there is a mapping with the values of the observer. Any discussion of rationality must begin with this difficult problem of relativity in values.

This paper begins, therefore, by identifying the definitions and origins of rationality according to Schumpeter and Knight. The paper then moves to an explication of the views Knight and Schumpeter held on rationality and the implications they perceived for capitalism and democracy.

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