133
See also: Economic man 52–53 ■ The labor theory of value 106–07 ■
Utility and satisfaction 114–15^E
conomists at the end of the
1800s were still wrestling
with what determined the
value of a product. By 1914,
Austrian economist Friedrich von
Weiser was convinced that the
value of something was determined
by what had to be given up in order
to get it. In a world where people
have infinite wants and yet have
only a fixed amount of resources to
meet those wants, he argued that
scarcity would create the need for
choices. He called this concept
“opportunity cost” in Foundations
of Social Economy (1914). In 1935,
US economist Lionel Robbins
argued that a tragedy of human life
is that the consequence of choosing
to do one thing is that something
else has to be given up.True cost
This means that the cost of going
to the movies, for example, is not
really the cost of admission to the
cinema but also the enjoyment you
give up from your next best choice
of activity. So although there is a
monetary consequence of choosingone course of action, opportunity
cost means more. You can’t watch
a movie and ice skate at the same
time. Sometimes there is what can
be called an opportunity cost even
if there is no monetary cost. Weiser
thought that ultimately the price of
a product was determined by how
much it was desired, and this is
measured by what people were
willing to give up to get it, rather
than how much it cost to produce. ■INDUSTRIAL AND ECONOMIC REVOLUTIONS
THE COST OF GOING
TO THE MOVIES IS
THE FUN YOU’D HAVE
HAD AT THE ICE RINK
OPPORTUNITY COST
IN CONTEXT
FOCUS
Theories of value
KEY THINKER
Friedrich von Wieser
(1851–1926)
BEFORE
1817 David Ricardo argues
that the value of a commodity
is determined by the amount
of labor hours used to
produce it.
AFTER
1920 Alfred Marshall argues
in Principles of Economics that
both supply and demand have
a role in determining price.
1949 Ludwig von Mises
explains in Human Action
how prices convey important
information in markets.
1960 Italian economist
Piero Sraffa questions the
opportunity cost measure
of value in Production of
Commodities by Means
of Commodities.
Economics brings
into view that conflict
of choice which is one of the
permanent characteristics
of human existence.
Lionel Robbins