Quotes from Cost and Choice

By James Buchanan (1969)

• If idealized market interaction process—pure or perfect competition—is used as the standard for deriving conditions which are then to be employed as norms for interference with actual market process, the question of objective measurement must be squarely faced. If prices ‘‘should’’ be brought into equality with costs of production, as a policy norm, costs must be presumed objective, in the sense that they can be measured by others than the direct decision-maker.#
  EconomicsPoliticsEpistemology
• Cost is relevant to decision, and it must reflect the value of foregone alternatives. A budget, however, reflects the prospective or anticipated revenue and outlay sides of a decision that has been made. It is erroneous to consider such prospective outlays as appear in a budget as costs. The budget must, however, also be distinguished from the account, which measures realized revenues and outlays that result from a particular course of action.#
  EconomicsMethodologyPraxeology
• There is necessarily a close correlation between the relevance of objectively measured costs for a theory of choice in either long-term or short-term equilibrium and the presence or absence of uncertainty. In the face of uncertainty, the evaluation of alternatives by the actual decision-taker may differ from the evaluations of any external observer, even if the qualifying conditions are met. The inherent subjectivity of cost in any theory of choice reasserts itself here.#
  EconomicsMethodology
• The cost-benefit expert cannot have it both ways. He cannot claim ‘‘scientific’’ precision for his estimates unless he restricts himself rigidly to objectively observable magnitudes. But if he does this, he cannot claim that his estimates reflect reasonable norms upon which ‘‘social’’ choices should be based.#
  EconomicsMethodology
• The familiar statement, ‘‘The post offices built during the 1930’s cost very little in terms of sacrificed alternatives’’ tends to be misleading. These projects did involve genuine opportunity costs to the decision-makers, and these were represented as the prospective values of other public and private projects that were never undertaken. The issue of currency, to the extent that this was carried out in the conditions of the 1930’s, was the choice that should have cost very little in terms of sacrificed alternatives.#
  HistoryEconomics
• To locate the genuine cost of public goods, a cost which influences fiscal choice, we must look at the fiscal alternatives. What is avoided if debt is not issued and the public goods not provided? If public debt is not created, if bonds are not marketed, the decision- maker, along with others in the collectivity, avoids the necessity of servicing and amortizing the debt in future periods.#
  Politics
• In the externality relationship, by definition, trade does not take place. It seems reasonable to think that it is precisely in this kind of relationship that genuinely benevolent behavior patterns might be witnessed. Indeed, it might plausibly be argued that in almost all of our nonmarket behavior, there is potential externality and that the ordinary functioning of civil society depends critically on a certain mutuality of respect. #
  Ethics
• So long as individuals on either side of the market are allowed to express their preferences by continuous adjustments in behavior, nonpecuniary elements will be fully embodied in the solution that emerges. Prices will tend to equal marginal opportunity costs. What is destroyed by the presence of nonpecuniary elements in choice is the spurious objectivity of costs, as measured by prices of resource services.#
  EconomicsMethodology
• To the extent that the consideration of prospective harm to others, or, in fact, any moral restraint upon the decision, varies with the location and incidence of the offense contemplated, the opportunity cost of the offense varies. Hence, we should expect that crimes committed within the local community of the perpetrator against persons with whom he has close contacts would normally involve a higher cost barrier due to the moral restraint upon the actor in such a situation. From this it follows that fines or penalties required to achieve any given level of deterrence can be somewhat lower for these cases than for others. That is, crimes committed locally should bear lower fines than those imposed for identical crimes committed outside the community and on ‘‘foreigners.’’#
  PoliticsEconomics
• If the ‘‘true costs’’ of employing resources could be measured (let us say by an omniscient observer who can read all preference functions) along with the ‘‘true benefits,’’ allocative efficiency in nonmarket resource usage could be ensured only if the effective decision-maker acted in accordance with artificial criteria for choice. That is to say, allocative efficiency will emerge only if the effective choice-maker acts, not as a behaving person, but as a rule-following automaton.#
  EconomicsPolitics
• Only if costs can be objectified can they be divorced from choice, and only if they are divorced from choice can the institutional-organizational setting that the chooser inhabits have no influence on costs.#
  EconomicsMethodologyInstitutions
• Nonmarket choice cannot, by its very nature, be made to duplicate market choice until and unless the ownership-responsibility pattern in the former fully matches that in the latter, an achievement that would, of course, eliminate all institutional differences between the two.#
  EconomicsInstitutions
• The individual whose payoff structure is only some proportionate share of that which he might confront under full ownership will tend to take more risks. The reason is obvious. Since the nonpecuniary differential arises only because of the declining marginal utility of income, the fact that the outcome range is lower under proportionate share payoffs than under full responsibility and ownership ensures some lessening of this differential.#
  EconomicsPraxeology

Frank Knight, The Economic Organization (1934)

• The cost of any alternative (simple or complex) chosen is the alternative that has to be given up; where there is no alternative to a given experience, no choice, there is no economic problem, and cost has no meaning.#
  EconomicsPraxeology