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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

Choice-Influencing and Choice-Influenced Cost

The six attributes of cost listed above are relevant to any particular choice. If cost is to be influential in affecting that choice, it must be defined in terms of these attributes. Nonetheless, we must also recognize that choice has consequences: things happen as a result of decisions. Having committed himself to one course of action rather than another and having presumably made some rational estimation of the costs that this would embody, the individual “suffers” the consequences. He may not regret his prior decision, but, at the same time, he may undergo “pain” or “sacrifice” when he is required to reduce his utility levels. Whether or not choices were rightly or wrongly made has little direct relevance to the existence of this choice-influenced “cost.”

It is this “cost” consequent to choice which helps to create a part of the confusion between cost in the predictive theory and cost in the logic of choice. That which happens after choice is made is what economists seem to be talking about when they draw their cost curves on the blackboards and what accountants seem to be concerning themselves with. It is necessary that this choice-influenced “cost” be more thoroughly examined.

If we bend linguistic principle to accommodate orthodox usage here, it seems best to allow the word “cost” to be used in these two quite separate senses within any theory of choice, while continuing to employ this same term in its single usage in the predictive theory of economic behavior. Hence, we have both “choice-influencing cost” and “choice-influenced cost” within the theory of choice and defined in utility space, and we have “objective cost,” defined strictly in the commodity space of the predictive theory. Let us now neglect the objective cost of the predictive science and concentrate on choice-influencing and choice-influenced cost. Every choice involves both of these. First, there is the genuine obstacle to choice, the opportunity cost that was central to the thoughts of those economists whose contributions were summarized in Chapter 2. Second, there are the utility losses that are always consequent to choice having been made, whether these be suffered by the chooser or by third parties and whether there may or may not be objectively measurable surrogates for these losses, e.g., payouts. These losses are the result of decision and never its cause. In the one case, cost inhibits choice; in the other, cost results from choice. These concepts of cost can be discussed more fully in connection with several of the familiar, but ultimately misleading distinctions.