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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

The Marshallian Synthesis

Alfred Marshall thought that he had rewritten classical economics, incorporating, in the process, qualifications and criticisms which apparently were developed independently of the marginal-utility theorists, despite the similarities in treatment of particular elements. His period analysis provided a general model in which adjustment lags determined the relative explanatory power of marginal-utility and cost-of-production hypotheses. His sympathies were with the classicists, and he sensed the predictive advantages of the basic classical model.

Marshall was too sophisticated an analyst to overlook the simple idea of opportunity cost, but explicit statements of this notion cannot readily be found in his discussion. Cursory reading suggests that Marshall was willing to accept a naive classical version of real or pain cost arising from the exertions of the laborer and the abstinence of the capitalist. In part, his lack of precision in defining cost was due to his direct and pragmatic concern with explaining price formation. Marshall did not ask conceptual and definitional questions for their own sake, and he seemed willing to stop short of these inquiries once he had provided what he considered satisfactory answers to relevant practical questions.

For these purposes, money costs, as determined by prices set in factor markets, were sufficient. In the long period, after all adjustments are made and if other things do not change in the interim, prices tend to settle at the level of money costs when constant returns prevail. To Marshall this was a reasonably satisfactory statement, really all that could be expected from economics. His models, here as elsewhere, are often “fuzzy”—one feels deliberately so—not because he overlooked, but because he recognized the complexities involved in setting things all straight. Perhaps this is unduly sympathetic to Marshall, but one feels that, despite the ambiguities, he would never have made the blunders that his successors fell into over their failures to define costs properly.