Fritz Machlup · 1962
Fritz Machlup’s The Production and Distribution of Knowledge in the United States is a single-author economic monograph and national accounting study. Its scope is deliberately expansive: it treats knowledge not as a cultural ornament or a residual of “real” production, but as a measurable field of economic activity in mid-twentieth-century America.
The production of knowledge is an economic activity, an industry, if you like.
The book’s central conceptual move is to enlarge “production” beyond discovery or invention. For Machlup, knowledge becomes economically significant only through a chain that includes creation, transmission, organization, and use. This is why the book joins laboratories, schools, communication media, professional services, and government information-making within one analytic frame.
In other words, “producing” knowledge will mean, in this book, not only discovering, inventing, designing, and planning but also disseminating and communicating.
This definition gives the work both its power and its difficulty. Machlup is not simply counting patents or research budgets; he is reconstructing a social economy in which teaching, reporting, planning, governing, and inventing all move knowledge through institutions. The resulting “knowledge industry” cannot be analyzed as an ordinary commodity sector, because much of it is not allocated by competitive prices.
The production of knowledge is, for the greater part, not guided by the market mechanism.
The monograph therefore combines economic measurement with epistemological caution. Machlup distinguishes knowledge from mere belief or faith, insisting that claims to know require evidentiary grounding even when they circulate socially as conviction.
They may well have the truth—but faith alone, not evidence, supports it.
That distinction matters because the book asks what exactly is being produced when a society spends on science, education, administration, or communication. Machlup’s answer is not naïvely quantitative. He repeatedly acknowledges that the most important features of invention and inquiry resist simple accounting.
Most of the important inputs and outputs in the inventive process are definitely nonmeasurable.
Yet the impossibility of perfect measurement does not justify treating knowledge as economically invisible. A key argument of the book is that scientific and technological knowledge should be understood as capital-forming activity: present resources are withheld from immediate consumption in order to generate future productive capacity.
We conclude that the production of new scientific and technological knowledge requires an act of saving and constitutes an act of investment.
The structure of the work follows from this premise. It first clarifies what counts as knowledge and knowledge-production, then moves through major institutional sites where knowledge is produced and distributed, and finally aggregates expenditures in order to show the size of the field. One of its most striking extensions is the treatment of government. Machlup includes not only public research or statistical agencies but the communicative and rule-making functions of the state itself.
A wide concept of knowledge-production, however, invites the addition of several other activities of the government; indeed, it includes the very act of “governing” in so far as it consists of formulating rules of conduct and communicating them to the governed, as well as to those who administer and enforce the rules.
This move shifts government from being merely a financer of knowledge to being itself a producer and distributor of codified information. But Machlup is careful about classification: some public knowledge activity is neither private consumption nor ordinary investment, but part of the institutional overhead of an organized economy.
Thus, the entire expenditures of government for knowledge-creating activities are regarded here as the cost of running the economic establishment of the nation—neither as an investment nor as consumption.
The empirical culmination is the estimate of the scale of the American knowledge economy. Its magnitude depends precisely on the breadth of the definition: if knowledge includes education, invention, administration, communication, and related services, it becomes one of the central sectors of national life.
Total expenditures for knowledge, in the sense used in this book, were $136,436 million in 1958.
The continuing relevance of Machlup’s book lies in this reframing. Long before “information economy” or “knowledge economy” became standard phrases, he offered a method for seeing advanced capitalism as organized around the production, certification, circulation, and use of knowledge. The book is not merely a statistical inventory; it is an argument that modern economic structure cannot be understood if knowledge remains an externality, a by-product, or an immeasurable abstraction.
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