This note reproduces an unpublished paper on "Social Values in Economic Consumption" which Knight prepared for the Social Science Research Council (SSRC) Summer Conference, on Nantucket, Massachusetts in June 1931. This paper sheds new light on Knight in two important respects. First, it presents, in a more systematic fashion, Knight’s criticism of what he perceived to be the then standard theory of consumption. Specifically, Knight argued that an individual's consumption is dictated more by his income in relation to others than by mere utility maximization—a notion now commonly known as relative income hypothesis. In this connection, Knight also pointed out that a general increase in income, not only leaves the individual’s relative position in society unaltered but makes her/his situation worse off due to the peculiar characteristics of the market for “personal services.” Second, this unpublished address provides further evidence of how, in spite of some substantial differences in terms of methodology, his research interests converged in many respects with those of the institutionalists.

JEL Codes: B25; D31.

Keywords: Frank H. Knight; Consumption; Relative income; Institutionalism