The Confused and Contradictory Notion of “Real Costs” Underlies Efforts to Determine Nonmarket Prices

Ludwig von Mises was one of the chief sources for the subjectivist economics expounded at LSE by Hayek, and his work was an influence as well on both Robbins and Thirlby. Mises’ earlier work on the possibility of socialist calculation has been mentioned; some reference must now be made to his treatise, Human Action, published in English in 1949, but based on a work in German published in 1940. In this book, Mises does discuss cost explicitly, even if briefly, and his basic conception is similar to that London conception that is best represented in Thirlby’s work. Generically, ‘‘costs are equal to the value attached to the satisfaction which one must forego in order to attain the end aimed at’’ (p. 97). ‘‘At the bottom of many efforts to determine nonmarket prices is the confused and contradictory notion of real costs. If costs were a real thing, i.e., a quantity independent of personal value judgments and objectively discernible and measureable, it would be possible for a disinterested arbiter to determine their height.... Costs are a phenomenon of valuation. Costs are the value attached to the most valuable want-satisfaction which remains unsatisfied’’ (p. 393).

Mises’ ideas on cost have been further developed by two of his American followers. In his two-volume treatise, Man, Economy, and the State, Murray Rothbard adopts a subjectivist conception of cost that is closely akin to that advanced by G. F. Thirlby. And perhaps the single most satisfactory incorporation of a choice-related notion of cost into a general price-theory context is found in Kirzner’s Market Theory and the Price System.

—James M. Buchanan, Cost and Choice: An Inquiry in Economic Theory, vol. 6 of The Collected Works of James M. Buchanan (Indianapolis: Liberty Fund, 1999), 33-34.