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• Foreword
• Preface
• Acknowlegments
• Cost and Choice
• 1.: Cost In Economic Theory
• Classical Economics
• Marginal-utility Economics
• The Marshallian Synthesis
• Frank Knight and American Neoclassical Paradigms
• 2.: The Origins and Development of a London Tradition
• Wicksteed and the Calculus of Choice
• H. J. Davenport
• Knight On Cost As Valuation
• Robbins, 1934
• Mises, Robbins, and Hayek On Calculation In a Socialist Economy
• Hayek, Mises, and Subjectivist Economics
• The Practical Relevance of Opportunity Cost: Coase, 1938
• G. F. Thirlby and “the Ruler”
• Mises’ Human Action
• The Death of a Tradition?
• Appendix to Chapter 2: Shackle On Decision
• 3.: Cost and Choice
• The Predictive Science of Economics
• Cost In the Predictive Theory
• Cost In a Theory of Choice
• Choice-influencing and Choice-influenced Cost
• Opportunity Cost and Real Cost
• The Subjectivity of Sunk Costs
• Cost and Equilibrium
• 4.: The Cost of Public Goods
• The Theory of Tax Incidence
• Costs and Fiscal Decision-making: the Democratic Model
• Costs and Decision-making: the Authoritarian Model
• Costs and Decision-making: Mixed Models
• The Choice Among Projects
• The Costs of Debt-financed Public Goods
• Ricardo’s Equivalence Theorem
• Tax Capitalization
• 5.: Private and Social Cost
• Summary Analysis
• A Closer Look
• Internal Costs, Equilibrium, and Quasi-rents
• An Illustrative Example
• Pigovian Economics and Christian Ethics
• Narrow Self-interest and Alternative-opportunity Quasi-rents
• Conclusion
• 6.: Cost Without Markets
• Prices, Costs, and Market Equilibrium
• Resource-service Prices As Final-product Costs
• Market Equilibrium, Costs, and Quasi-rents
• The Cost of Military Manpower: an Example
• The Cost of Crime: Another Example
• Artificial Choice-making
• Socialist Calculation and Socialist Choice
• Costs In Bureaucratic Choice

James M. Buchanan, 1963

Foreword

James M. Buchanan himself speaks of “my little book, Cost and Choice.” Cost and Choice is indeed small in size, but, systematically, it holds quite a central place in Buchanan’s work. For the fundamental economic notion of “cost,” or “opportunity cost,” is intimately related to the individualist and subjectivist perspective that is so essential to the Buchanan enterprise. As a subjectivist, Buchanan insists that opportunity costs exist only in the “eye of the beholder” as envisioned “alternatives” that are never brought into existence. As a methodological individualist, Buchanan believes that opportunity costs cannot be measured in terms of a collective welfare functional aggregating utility foregone across persons.1

Similar views in theories of cost have been developed and expressed since the 1930s at the London School of Economics by scholars such as Lionel Robbins, F. A. Hayek, Ronald Coase, and Jack Wiseman. These theories, for systematic as well as personal reasons, have quite strong links to even older theories of the so-called Austrian economists. However, though acknowledging and supporting the Austrian contribution in the socialist calculation debate with arguments based on his own concept of cost, Buchanan distances himself somewhat from the Austrians. Avoiding what he regards as the “arrogance of the eccentric,” Buchanan makes a serious effort to integrate his views into the orthodox classical and neoclassical framework. Therefore the discussion in Cost and Choice starts with Adam Smith’s famous deer-beaver example. In the particularly simple “one-factor” setting of that example, subjective opportunity costs are themselves “explained” by objective transformation rates. Because everybody can transform two deer into one beaver and vice versa, any divergence between the transformation and the exchange rate should eventually be washed out by the choices that rational decision makers make in view of the opportunity costs of their decisions. But what about more complicated settings?

Cost and Choice addresses this issue. When publishing the book, Buchanan clearly hoped that other scholars might follow him in his efforts to build a new research tradition in economic analysis around a thorough understanding of the opportunity-cost concept. However, despite Buchanan’s serious efforts to communicate his profound insights on the nature of “cost and choice” and to relate these insights to mainstream neoclassical economics, a look at the Social Science Citation Index indicates that he did not succeed in this regard. This relative neglect of the theoretical underpinnings of Buchanan’s economic worldview as presented in Cost and Choice is somewhat strange. After all, specific applications of his general views to problems of public economics were much better received and, in fact, enormously influential.2 In any event, it might be good policy for those who think highly of Buchanan’s more specific insights and arguments to consider more seriously their general foundations as laid out in Cost and Choice.3 The republication of Cost and Choice clearly reduces the costs of doing just this and offers ample opportunity to go back to the roots of economics.

Hartmut Kliemt

• University of Duisburg

1998

[1. ]James M. Buchanan and G. F. Thirlby, LSE Essays on Cost (London: Weidenfeld and Nicholson, 1973), 6; Cost and Choice: An Inquiry in Economic Theory (Chicago: Markham Publishing Co., 1969), volume 6 in the series.

[2. ]In particular, as reprinted in Debt and Taxes, Externalities and Public Expenditure Theory, and Public Principles of Public Debt, respectively, volumes 14, 15, and 2 of the Collected Works.

[3. ]See also some of the essays in Economic Analysis, volume 12 of the Collected Works.