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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

Costs and Decision-Making: The Authoritarian Model

Choice-influencing costs of public goods differ with the location of effective decision-making power in the collectivity. Even in the most naive of democratic models in which the decision-maker is assumed to be both the prospective taxpayer and the prospective beneficiary in some “representative” sense, genuine opportunity costs must include the individual’s evaluation of enjoyments foregone by others. The fact of collective decision requires this. It is clear that when more complex models of decision-making are introduced, this nonpersonal aspect of costs becomes more significant. To illustrate this, we may shift attention to the nondemocratic extreme of the spectrum and examine an authoritarian decision-structure.

Assume that all decisions for the collectivity are made by a single person who has dictatorial powers. Limiting analysis to public finance, what are the choice-influencing costs in such a setting? What are the obstacles to the dictator’s decision on the levy of a tax to finance a specific governmental outlay? In the limit, he will not personally bear any share of the prospective tax to be imposed. The “costs” that might be avoided by a decision not to impose the tax are, therefore, exclusively represented in the dictator’s evaluation of the enjoyments which others than himself might secure in the absence of the tax. In such a decision context as this, it seems almost meaningless to use anticipated outlay or payment as an indirect representation of that cost which influences choice. As mentioned above, cost-benefit analysis may produce wildly inaccurate estimates even in the most unsophisticated of democratic models, because the collective aspects of both costs and benefits are ignored. The results of such analysis are not, however, without some relevance. By contrast, cost-benefit analysis of the orthodox variety when applied to the authoritarian model becomes absurd since no part of the anticipated outlay, as measured, is expected to be borne by the man who makes the choice.