Front Page Titles (by Subject) Conclusion - Cost and Choice: An Inquiry in Economic Theory, Vol. 6 of the Collected Works
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Conclusion - James M. Buchanan, Cost and Choice: An Inquiry in Economic Theory, Vol. 6 of the Collected Works 
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.
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I should emphasize that this chapter is not designed as a general critical analysis of the Pigovian policy norms. Such an analysis would have required the treatment of many interesting issues that have been ignored here. My purpose has been to utilize this familiar branch of applied economic theory to demonstrate the desirability of clarifying the basic notions of opportunity costs. To those who fully accept and understand the London-Austrian contributions, the internal inconsistencies in the Pigovian logic will be apparent. To those who have been trained in the neoclassical paradigms of opportunity cost, recognition of the inconsistencies may require a working out of elementary examples. It is not easy to question long-accepted precepts, and in the several versions of this chapter, I have found it difficult to prevent the analysis from lapsing into the kind of conventional methodology that I have often used in other works. The result may give the appearance of complexity despite the elementary nature of the points being made. In effect, the incorporation of the London conception of opportunity cost amounts to transforming one of the foundation stones of economic theory. Only when this basic modification is completed can real progress toward changing the superstructure be attempted on a large scale. Meanwhile, only the most exposed aspects of this superstructure—the Pigovian welfare analytics, for example—can be related directly to the particular flaw in one of the theory’s cornerstones.
Cost Without Markets
If prices are established in a market process, the decisions of buyers and sellers will be based on cost-benefit comparisons. Before any choice is made, anticipated benefits must exceed opportunity cost. If continuous adjustment is possible, each participant moves toward behavioral equilibrium where anticipated marginal benefit equals marginal opportunity cost. In this purely individualistic context, questions about the precise meaning of cost or of benefit need not arise. The analysis offers a logic of rational individual decision, and cost is simply that which is foregone by positive choice, at the moment of choice itself.
As Hayek emphasized, equilibrium in a market interaction is categorically different from the behavioral equilibrium of an individual participant in that interaction. In the latter, there must be an absence of gains-from-trade within the perceived choice range of the individual. In the former, there must be an absence of gains-from-trade, in total or at the margin, from action taken among all individuals, each one of whom perceives the prospects of trade with others as a part of his own choice set. In order for market equilibrium to be established, every participant must be in his own behavioral equilibrium, but the contrary need not be true. That is, each individual can attain behavioral equilibrium at the moment of choice, but unless the decisions of separate persons are in a unique relationship with one another, market equilibrium need not result. The failure of this equilibrium to emerge will set in motion changes in behavioral equilibria of individuals for subsequent choices.