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Appendix to Chapter 2: Shackle on Decision - James M. Buchanan, Cost and Choice: An Inquiry in Economic Theory, Vol. 6 of the Collected Works [1969]

Edition used:

The Collected Works of James M. Buchanan, Foreword by Geoffrey Brennan, Hartmut Kliemt, and Robert D. Tollison, 20 vols. (Indianapolis: Liberty Fund, 1999-2002). Vol. 6 Cost and Choice: An Inquiry in Economic Theory.

Part of: The Collected Works of James M. Buchanan in 20 vols.

About Liberty Fund:

Liberty Fund, Inc. is a private, educational foundation established to encourage the study of the ideal of a society of free and responsible individuals.


Appendix to Chapter 2: Shackle on Decision

A survey of London contributions would be incomplete without reference to the work of G. L. S. Shackle. The problem of integrating intellectual constructions within one’s own thought is well illustrated in his case. Shackle was a student at LSE in the years when the opportunity-cost conception was being developed. In several of his papers, Thirlby expresses indebtedness to Shackle; and it is immediately evident that Shackle’s treatment of the decision process is wholly consistent with the London doctrine of opportunity cost. Yet—and surprisingly—Shackle does not, to my knowledge, make the obvious linkage between his provocative and important work on decision, uncertainty, and time and the work on opportunity cost carried forward by his LSE counterparts. In his general treatment of cost itself, Shackle reverts to orthodoxy.

His contributions to the theory of decision can, nonetheless, be helpful in clarifying the theory of cost, and some selected excerpts from one of his books34 seem worth presenting:

When a number of actions, distinguished from each other by the sets of outcomes respectively assigned to them, are available and choice amongst them is open to the decision-maker, the sets of outcomes, each considered as a whole, are mutually exclusive rivals of each other. Within each set, the members also are mutually exclusive rival hypotheses. Thus these outcomes cannot be matters of fact but are things imagined by the decision-maker. They exist in his imagination, not after but before his commitment to a particular act; their existence is within the moment of decision and forms part of that act [pp. ix, x].

Decision means literally a cut ... a cut between past and future [p. 3].... We assume that choice amongst a set of rival available acts will be made in view of consequences associated in some manner and degree by the decision-maker with the acts. We also assume that the only consequences relevant for this choice are experiences of the decision-maker.... For three separate reasons ... they cannot be experiences coming from outside the decision-maker’s mind from sources of stimulus observable in principle by others; they cannot, that is to say, be what we ordinarily speak of as ’real’ experiences requiring the intervention of sense perceptions of the external world; they cannot be ’news’ [p. 8].

... Outcomes are figments and imaginations [p. 9]. For it is the contention that the outcomes, by comparison of which decision is made, are figments of the individual mind (no matter whether in some later actuality they shall be observed to have come true: nothing could be more irrelevant) [p. 10].

These and many other statements by Shackle could be inserted almost without change in the cost discussions of Coase and Thirlby. Shackle’s failure to make the shift of these relevant ideas to his own—though much more elementary—discussion of cost indicates that the classically based predictive theory can exist alongside the logical theory of choice in the thought patterns of a single economist, even though the two theories are incompatible with each other.

3.

Cost and Choice

A century has elapsed since the subjective-value revolution in economic theory, but the subjective theory of value has not been fully reconciled with the classically derived objective theory. As the notes on the development of the concept of opportunity cost indicate, economists have not drawn carefully the distinction between a predictive or scientific theory and a logical theory of economic interaction. As subsequent chapters will demonstrate, this methodological confusion is the source of pervasive error in applied economics. The treatment and discussion of cost, especially in its relation to choice, provides a usefully specific context within which the more general methodological issues can be examined.

[34. ]G. L. S. Shackle, Decision, Order and Time in Human Affairs (Cambridge: Cambridge University Press, 1961), pp. ix, x.