Opportunity Cost Examples, Passages, Quotes

Here are some passages and quotes on the opportunity cost concept.  I'm always looking to expand my collection so please feel free to share your favorite in a comment.

The opportunity cost concept is important because our spending (time/money) decisions input everything we know and value into the impossibly complex formula that determines how society's limited resources are used/allocated.  This is why markets produce the maximum possible value.  In order to fully appreciate why socialism does not work...the next time you go shopping just disregard everything you know and value.  Put things in your shopping cart that do not even vaguely match your preferences.  For example, if you're a vegetarian fill your shopping cart up with steaks.  

The more you understand the importance/relevance/significance of the opportunity cost concept...the more you'll appreciate the necessity of creating a market in the public sector (pragmatarianism FAQ).

[Update: 7 Feb 2015] For a complete list of quotes/passages please see.. OpCost.

Short and simple...

To get one thing that we like, we usually have to give up another thing that we like. Making decisions requires trading off one goal against another. - Greg Mankiw 

Long and simple...

First, economics is all about individuals. That is because economics is all about choice. We can’t have everything, so we have to choose which things are most important to us: would we prefer a new car, for example, or a summer holiday? To go out with friends, or to relax at home? Invariably, we have to give up one thing (an amount of money or time and effort, say) to get another (such as a new pair of shoes or a tidy garden). These are economic decisions – even when no money is involved. They are questions of how we juggle scarce resources (cars, holidays, company, leisure, money, time, effort) to best satisfy our many wants. They are what economics is all about. - Eamonn Butler, Austrian Economics

In economic terms...

The concept of opportunity cost (or alternative cost) expresses the basic relationship between scarcity and choice. If no object or activity that is valued by anyone is scarce, all demands for all persons and in all periods can be satisfied. There is no need to choose among separately valued options; there is no need for social coordination processes that will effectively determine which demands have priority. In this fantasized setting without scarcity, there are no opportunities or alternatives that are missed, forgone, or sacrificed. - James M. Buchanan

Also described as a "cross road situation"...

By contrast, if a consumer wants a new TV set and a new washing machine and he can afford only one of these without drawing on his savings (which he dislikes), he is in a cross-road situation. He must deliberate until he arrives at a decision as to which course of action he prefers. Thus, while we have reason to assume that preference functions for alternative uses of private funds (including the savings alternative) have some firmness and consistency, our findings raise doubt whether the corresponding concept of a preference function for alternative fiscal policies is fruitful. - Eva Mueller

The complexity of it all...

These extraordinarily complex micro-relationships are what we are really referring to when we speak of “the economy.” It is definitely not a single, simple process for producing a uniform, aggregate glop. Moreover, when we speak of “economic action,” we are referring to the choices that millions of diverse participants make in selecting one course of action and setting aside a possible alternative. Without choice, constrained by scarcity, no true economic action takes place. Thus, vulgar Keynesianism, which purports to be an economic model or at least a coherent framework of economic analysis, actually excludes the very possibility of genuine economic action, substituting for it a simple, mechanical conception, the intellectual equivalent of a baby toy. - Robert Higgs, Recession and Recovery 

As it relates to taxes...

But, besides all this, there is something which is not seen. The fifty millions expended by the State cannot be spent, as they otherwise would have been, by the tax-payers. It is necessary to deduct, from all the good attributed to the public expenditure which has been effected, all the harm caused by the prevention of private expense, unless we say that James B. would have done nothing with the crown that he had gained, and of which the tax had deprived him; an absurd assertion, for if he took the trouble to earn it, it was because he expected the satisfaction of using it, He would have repaired the palings in his garden, which he cannot now do, and this is that which is not seen. He would have manured his field, which now he cannot do, and this is what is not seen. He would have added another story to his cottage, which he cannot do now, and this is what is not seen. He might have increased the number of his tools, which he cannot do now, and this is what is not seen. He would have been better fed, better clothed, have given a better education to his children, and increased his daughter's marriage portion; this is what is not seen. He would have become a member of the Mutual Assistance Society, but now he cannot; this is what is not seen. On one hand, are the enjoyments of which he has been deprived, and the means of action which have been destroyed in his hands; on the other, are the labour of the drainer, the carpenter, the smith, the tailor, the village-schoolmaster, which he would have encouraged, and which are now prevented - all this is what is not seen. - Frédéric Bastiat, The Seen vs the Unseen

As it relates to economic imperialism...

A corollary of maximization is that on the margin, there are always tradeoffs.  The notion that there is no free lunch is central to economics.  The simple, but crucial concept of opportunity cost lies behind much of the ability of economics to extend into other areas.  Sometimes the tradeoffs are subtle.  Prices and costs are not necessarily parameters that are observed in market data, but they affect behavior nonetheless.  Other social sciences do not place the same weight on explicit recognition of the tension between costs and benefits, which reduces the ability of these fields to grapple systematically with social phenomena.  Thinking about tradeoffs gives rise to related thoughts on substitutability.  Economists place emphasis on choice.  Things are not technologically determined.  This is true for consumers and producers alike.  There is no fixed number of jobs.  Firms can trade off between employing labor and capital and workers can choose between labor and leisure. - Edward Lazear, Economic Imperialism

In terms of conservation...

The economic approach stresses the fact that any expenditure always has an opportunity cost, i.e. a benefit that is sacrificed because money is used in a particular way.  For example, since biodiversity is threatened by many factors, but chiefly by changes in land use, measures of value denominated in monetary terms can be used to demonstrate the importance of biodiversity conservation relative to alternative uses of land.  In this way, a better balance between 'developmental' needs and conservation can be illustrated.  To date, that balance has tended to favour the conversion of land to industrial, residential and infrastructure use because biodiversity is not seen as having a significant market value.  Economic approaches to valuation can help to identify that potential market value, whilst a further stage in the process of conservation is to 'create markets' where currently none exist.  Market creation is the subject of a separate OECD initiative (OECD, forthcoming). - David Pearce, Dominic Moran, Dan Biller, Handbook of Biodiversity Valuation A Guide for Policy Makers

From the same source...

Individuals express preferences about changes in the state of the world virtually every moment of the day.  The medium through which they do this is the market place.  A vote for something is revealed by the decision to purchase a good or service.  A vote against, or an expression of indifference, is revealed by the absence of a decision to purchase.  Thus the market place provides a very powerful indicator of preferences. 

I highly recommend clicking through every instance of "opportunity cost" in this source... Handbook of Biodiversity Valuation A Guide for Policy Makers

More nature...

We have to think more carefully. If thicker shells are really better for the snail, why don't they have them anyway? The answer probably lies in economics. Making a shell is costly for a snail. It requires energy. It requires calcium and other chemicals that have to be extracted from hard-won food. All these resources, if they were not spent on making shell substance, could be spent on something else such as making more offspring. A snail that spends lots of resources on making an extra-thick shell has bought safety for its own body. But at what cost? It may live longer, but it will be less successful at reproducing and may fail to pass on its genes. - Richard Dawkins, The Selfish Gene

Even more nature...

Stopping to reproduce slows you down and takes away energy that you could otherwise spend on dispersing. As a result, cane toads at the invasion front rarely reproduce – even after we catch them and keep them in standardised conditions at our field station. - Hudson, C. H., B. L. Phillips, G. P. Brown, and R. Shine, Virgins in the vanguard: low reproductive frequency in invasion-front cane toads 

My favorite...

By preferring my work, simply by giving it my time, my attention, by preferring my activity as a citizen or as a professional philosopher, writing and speaking here in a public language, French in my case, I am perhaps fulfilling my duty. But I am sacrificing and betraying at every moment all my other obligations: my obligation to the other others whom I know or don’t know, the billions of my fellows (without mentioning the animals that are even more other others than my fellows), my fellows who are dying of starvation or sickness. I betray my fidelity or my obligations to other citizens, to those who don't speak my language and to whom I neither speak or respond, to each of those who listen or read, and to whom I neither respond nor address myself in the proper manner, that is, in a singular manner (this is for the so-called public space to which I sacrifice my so-called private space), thus also to those I love in private, my own, my family, my son, each of whom is the only son I sacrifice to the other, every one being sacrificed to every one else in this land of Moriah that is our habitat every second of every day. - Jacques Derrida

How many of you caught the reference to Moriah? That's an example of partial knowledge. Moriah is where Abraham was about to sacrifice his only son Issac.

Here's a Christian's perspective on Derrida's perspective...

It is through the gaze of my extinguished self that I realize the limitations that make scarcity necessary. Through this gaze into my own limitedness - a limit always established by the impending cessation of space and time for me - through this gift of death, I discover in nature the best way to be efficient. Thanks to death I must choose x rather than y. This has become a feature of 'nature' - a demystified 'nature' that bears no possibility of participation in the eternal. This is consistent with capitalism. - D. Stephen Long

Again from Derrida...

Sacrifice will always be distinguished from the pure gift (if there is any). The sacrifice proposes an offering but only in the form of a destruction against which it exchanges, hopes for, or counts on a benefit, namely, a surplus-value or at least an amortization, a protection, and a security. - Jacques Derrida

From the bible...

For what shall it profit a man, if he shall gain the whole world, and lose his own soul? - Mark 8:36

Again from the bible...

For God so loved the world, that he gave his only begotten Son, that whosoever believeth in him should not perish, but have everlasting life. - John 3:16

From Greek mythology...

‘Hercules, (says she,) I offer myself to you, because I know you are descended from the gods, and give proofs of that descent by your love to virtue, and application to the studies proper for your age. This makes me hope you will gain, both for yourself and me, an immortal reputation. But before I invite you into my society and friendship, I will be open and sincere with you, and must lay down this as an established truth, that there is nothing truly valuable which can be purchased without pains and labour. The gods have set a price upon every real and noble pleasure. If you would gain the favour of the deity, you must be at the pains of worshiping him; if the friendship of good men, you must study to oblige them; if you would be honoured by your country, you must take care to serve it. In short, if you would be eminent in war or peace, you must become master of all the qualifications that can make you so. These are the only terms and conditions upon which I can propose happiness.’ - Joseph Addison

The opportunity cost of Reagan's Strategic Defense Initiative...

They’ve already spent 20 billion dollars on it. If these guys are permitted to go ahead, they will spend a trillion dollars on Star Wars.  Think about what that money could be used for. To educate, to help, to bring people up to a sense of self-confidence. To improve, not just the happiness of people in America, but their economic standing. To improve the competitiveness of the United States compared to other countries. We are using money for the wrong stuff.  - Carl Sagan, Interview 

 The opportunity costs of war...

Every gun that is made, every warship launched, every rocket fired signifies, in the final sense, a theft from those who hunger and are not fed, those who are cold and are not clothed. This world in arms is not spending money alone. It is spending the sweat of its laborers, the genius of its scientists, the hopes of its children. The cost of one modern heavy bomber is this: a modern brick school in more than 30 cities. It is two electric power plants, each serving a town of 60,000 population. It is two fine, fully equipped hospitals. It is some fifty miles of concrete pavement. We pay for a single fighter plane with a half million bushels of wheat. We pay for a single destroyer with new homes that could have housed more than 8,000 people. This is, I repeat, the best way of life to be found on the road the world has been taking. This is not a way of life at all, in any true sense. Under the cloud of threatening war, it is humanity hanging from a cross of iron...Is there no other way the world may live? - Dwight D. Eisenhower 

More on the opportunity costs of war from the father of modern economics...

But had not those wars given this particular direction to so large a capital, the greater part of it would naturally have been employed in maintaining productive hands, whose labour would have replaced, with a profit, the whole value of their consumption. The value of the annual produce of the land and labour of the country would have been considerably increased by it every year, and every year's increase would have augmented still more that of the following year. More houses would have been built, more lands would have been improved, and those which had been improved before would have been better cultivated, more manufactures would have been established and those which had been established before would have been more extended; and to what height the real wealth and revenue of the country might, by this time, have been raised, it is not perhaps very easy even to imagine. - Adam Smith, The Wealth of Nations

The opportunity cost of Adam Smith having a desk job...

The change in his habits which his removal to Edinburgh produced, was not equally favourable to his literary pursuits.  The duties of his office, though they required but little exertion of thought, were yet sufficient to waste his spirits and to dissipate his attention; and now that his career is closed, it is impossible to reflect on the time they consumed, without lamenting, that it had not been employed in labours more profitable to the world, and more equal to his mind. - Dugald Stewart, An Account of the Life and Writings of Adam Smith 

Getting back to the opportunity cost of war, kinda, from the modern monetary perspective (MMT)...

I was sitting with a guy in 1999 or 2000 from the Pentagon and he said ‘we really need to increase the military.’ And I said ‘OK fine, but right now we just had unemployment at 3.8 percent. If you start building the military now, you are going to be taking people out of the private sectors.’ Capacity utilization was at a low [he means high] level. All the steel was going into private sector uses. We were building buildings. We had that whole dot-com boom remember. In 1999, I said ‘there is not a lot of excess capacity now to start building the military. We should have done this 8 or 10 years ago in a recession when we had excess capacity and steel and I don’t know how many million people unemployed.’ That would have been the time to build the military when we had this excess capacity. But now it’s going to be problematic. It’s probably going to be highly inflationary to do that because you are going to have to pay higher and higher prices to dislodge people who are already doing something productive in the private sector. - Warren Mosler, Defends the Essential Insights of Modern Monetary Theory (MMT)

 Regarding education...

The counterargument’s vastly more important, you’re spending how many hundreds of hours studying something you’re not going to remember later, or you can spend that time learning a craft like, I don’t know, how to break into safes. - Nassim Taleb, Discussion With Bryan Caplan 

Regarding attention...

We already have way more philosophy than we know what to do with; if anyone pays attention to these additional marginal philosophy articles, that attention will come at the expense of *other* philosophy articles. - Mike Huemer, On Ultra-Ineffective Altruism 

Price tags....

The price of anything is the amount of life you exchange for it. - Henry David Thoreau

More price tags...

 Wishes cost nothing unless you want them to come true. - Frank Tyger

Sayings....

1. Actions speak louder than words
2. Have one's cake and eat it too 
3. Put your money where your mouth is 
4. There ain't no such thing as a free lunch 

Funny...

If you combined the time you waste cutting grass with the time you waste shaving your face, we'd be goin' to Venus, you know, we could be doin' whatever. - Jase Robertson (Duck Dynasty)

More popular culture...

The loony music video “Gangnam Style” surpassed two billion views on YouTube this week, making it the most watched clip of all time. At 4:12 minutes, that equates to more than 140m hours, or more than 16,000 years. What other achievements were forgone in the time spent watching a sideways shuffle and air lasso? It took 50m man-hours to complete the “supercarrier” USS Gerald Ford last year. Had people not been watching PSY—the South Korean pop star who released the song in July 2012—they could have constructed three such ships. Alternatively they could have built more than four Great Pyramids of Giza, or another Wikipedia, or six Burj Khalifas in Dubai (the world’s tallest building). The song’s nearest rival is Justin Bieber’s “Baby”, at a paltry one billion views. The opportunity cost of watching PSY’s frivolity is huge, but humanity has at least been entertained. - The Economist, The hidden cost of Gangnam Style 

Creative destruction...

But have you ever asked yourselves sufficiently how much the erection of every ideal on earth has cost? How much reality has had to be misunderstood and slandered, how many lies have had to be sanctified, how many consciences disturbed, how much "God" sacrificed every time? If a temple is to be erected a temple must be destroyed: that is the law - let anyone who can show me a case in which it is not fulfilled! - Friedrich Nietzsche

Baal being sacrificed...

26 And they took the bullock which was given them, and they dressed it, and called on the name of Baal from morning even until noon, saying, O Baal, hear us. But there was no voice, nor any that answered. And they leaped upon the altar which was made.
27 And it came to pass at noon, that Elijah mocked them, and said, Cry aloud: for he is a god; either he is talking, or he is pursuing, or he is in a journey, or peradventure he sleepeth, and must be awaked.
28 And they cried aloud, and cut themselves after their manner with knives and lancets, till the blood gushed out upon them.
29 And it came to pass, when midday was past, and they prophesied until the time of the offering of the evening sacrifice, that there was neither voice, nor any to answer, nor any that regarded.

God being sacrificed...

Don't ask God to cure cancer & world poverty. He's too busy finding you a parking space & fixing the weather for your barbecue.

— Richard Dawkins (@RichardDawkins) July 20, 2013

Subsistence Agriculture vs Sweatshops

Nobody would consider working in a sweatshop to be a "good" option.  So what does it mean when people choose that option?  It clearly indicates that working in a sweatshop is their "best" available option.  That tells us something about their other available options.  For example...here's a photo I took of a young girl in Afghanistan gathering dung for a stone wall...

When liberals attack owners of sweatshops...they are attacking the people who give other people "better" options.  That's not how you help people...that's how you screw both the people who need help and the people who are truly helping them.  If liberals genuinely wanted to help people...then they would provide them with "better" options.  For example...they could start air-conditioned factories.

Are air-conditioned factories really a "better" option than sweatshops?  That should be up to employees and consumers to decide.  But we certainly don't make any progress...and we certainly do not help people...by allowing the government to dictate who business owners hire and how much they pay them.

For more on this concept see...Biting the Hand that Employs You

The Third Solution - Pragmatarianism

Here's what I posted for the anarcho-capitalists over on the Ron Paul Forums...Choice vs Coercion...

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In the thread on political labels CCTelander had this to say about pragmatarianism...

Being allowed to choose my rapist IN NO WAY renders the fact that I'm to be raped more tolerable. - CCTelander

Anarcho-capitalists hate coercion.  But what is coercion?  Coercion is the limitation of somebody's freedom.  And what is freedom?  Freedom is the ability to make choices for oneself.

Pragmatarianism advocates that taxpayers should be allowed to choose how their taxes are allocated.  Giving taxpayers a choice how their taxes are allocated would increase their freedom.  By increasing their freedom we would reduce the degree of coercion to which they are subjected.

So if anarcho-capitalists hate coercion...and pragmatarianism can reduce coercion...shouldn't anarcho-capitalists appreciate pragmatarianism?  Isn't reducing coercion a step in the right direction?

When I was stationed in Afghanistan I had to give capabilities briefings to various commanders.  The point of the briefings was to help the commanders understand how my team could help them accomplish their missions.  It was fairly easy to pick out the ineffective commanders because they did not demonstrate any interest in considering alternative approaches.  Of course, their lack of interest could have reflected my own ineffectiveness at conveying the value of my team's abilities.

In the fight against socialism Ludwig von Mises was an intellectual general.  But in 1922, when he launched his first major offensive, he wrote that there were no third solutions; the choices were either socialism or capitalism.  He steadfastly maintained this position in his later books.  The problem was that his dichotomy was false.

Let's get algebraic...

A = private ownership of the means of production
B = public ownership of the means of production
1 = market economy
2 = command economy

Capitalism: A1
Socialism: B2
Mixed economy: A1B2
Pragmatarianism: A1B1

Our current economy and that of most of the world's is A1B2.  Mises said that A1B2 was unfeasible because it would eventually collapse.  The current problems in Europe certainly seem to lend credence to his predictions.  But is it possible to consider that both A1 and B2 might have their respective flaws?

Extrapolating from these trends, either to the conclusion that "capitalism can't do anything right" (as it appeared in say, 1932) or that "government can't do anything right" (as it may appear today) is simply unwarranted.  The truth could lie somewhere in the middle; that is what makes the social-democratic order so difficult for simplistic forms of libertarianism to challenge effectively. - Jeffrey Friedman, What's Wrong with Libertarianism (PDF)

Mises' tunnel vision prevented him from seeing possible alternatives.  He told the world...these are your choices...A1 or B2.  His failure to offer A1B1 as a possible choice reflected that he had inadvertently intellectually coerced himself...and the the rest of the world.

What, exactly, does it mean for action and thought [to] be individualistic?  Clearly it is possible for people to act collectively, whether through cooperation or coercion; and it is even possible for them to "think" collectively, by learning from, or being brainwashed by, each other and their predecessors.  - Jeffrey Friedman, What's Wrong with Libertarianism (PDF)

What were the unintentional consequences of Mises' unintentional coercion?  What if in 1922 he had offered A1B1 as a possible choice?

When people were committed to the idea that in the field of religion only one plan must be adopted, bloody wars resulted.  With the acknowledgement of the principles of religious freedom these wars ceased.  The market economy safeguards peaceful economic co-operation because it does not use force upon the economic plans of the citizens.  If one master plan is to be substituted for the plans of each citizen, endless fighting must emerge.  Those who disagree with the dictator's plan have no other means to carry on than to defeat the despot by force of arms. - Ludwig von Mises, Socialism

Doesn't pragmatarianism allow for the greatest possible political freedom?  How many bloody wars would have been adverted if Mises hadn't coerced himself and others into believing that there were only two possible choices?  

When I was in a remote village in Afghanistan a very distraught lady told us that a couple days earlier the Taliban had beat her husband to death for refusing to give them his family's only food.  Is it moral for Americans to be thrown into jail for refusing to make small sacrifices towards preventing situations where people in other countries are killed for refusing to make big sacrifices?

Oversimplifying morality is self-coercion.  There will always be lesser evils and greater goods.  If you were given the choice, wouldn't it be wholly immoral if you allowed your taxes to support greater evils?

What is the value to society when each and every taxpayer is given the freedom to either maximize the benefit or minimize the harm of their taxes?  What is the value of forcing taxpayers to consider the opportunity costs of their tax allocation decisions?  What is the value of applying the invisible hand to the public sector?  Here are some additional pragmatarian questions.

When you tell people that their only choices are capitalism or socialism you are engaging in intellectual coercion.  You present a false dichotomy and intentionally limit people's choices.   I'm not asking that you tell people that pragmatarianism is a good choice...I'm just asking that you offer it to them as a possible choice.

The moment a libertarian leaves libertarianism behind, reality loses its threatening aspect; his intellectual marginality becomes a precious sources of fresh insight into every aspect of politics and culture.  It seems paradoxical but true that high seriousness can be enjoyable, and that political disengagement can produce genuine insights into politics.  The paradoxes may be dispelled, however, by realizing that disengagement is equivalent to alientation.  Alienation plants seeds of doubt, doubt nourishes serious thinking, and serious thought is the only alternative to an intellectual complacency that must always be shadowed by fear of its own simplifications. - Jeffrey Friedman, What's Wrong with Libertarianism (PDF)

Here are the passages that I found where Mises directly references a "third solution"...

1922 - Production can either be directed by the prices fixed on the market by the buying and by the abstention from buying on the part of the public.  Or it can be directed by the government's central board of production management.  There is no third solution available.  There is no third social system feasible which would be neither market economy nor socialism.  Government control of only a part of prices must result in a state of affairs which - without any exception - everybody considers as absurd and contrary to purpose.  Its inevitable result is chaos and social unrest. -  Ludwig Von Mises, Socialism

1922 - The notion of fairness is nonsensical if not related to an established standard.  In practice, if the employers do not yield to the threats of the unions, arbitration is tantamount to the determination of wage rates by the government-appointed arbitrator.  Peremptory authoritarian decision is substituted for the market price.  The issue is always the same: the government or the market.  There is no third solution. - Ludwig Von Mises, Socialism

1940 - It is frequently asserted that a third form of social cooperation is feasible as a permanent form of economic organization, namely a system of private ownership of the means of production in which the government intervenes, by orders and prohibitions, in the exercise of ownership. This third system is called interventionism. All governments which do not openly profess socialism tend to be interventionist nowadays, and all political parties recommend at least some degree of interventionism. It is claimed that this system of interventionism is as far from socialism as it is from capitalism, that as a third solution to the social problem it stands midway between the two systems, and that while retaining the advantages of both it avoids the disadvantages inherent in both.  - Ludwig von Mises, Interventionism

1944 - The Führer, the vicar of the "German God," will become their Supreme Lord. If they do not acquiesce in such a state of affairs, they must fight desperately until the Nazi power is completely broken. There is no escape from this alternative; no third solution is available. A negotiated peace, the outcome of a stalemate, would not mean more than a temporary armistice. The Nazis will not abandon their plans for world hegemony. They will renew their assault. Nothing can stop these wars but the decisive victory or the final defeat of Nazism.  - Ludwig von Mises, Omnipotent Government

1944 - The alternative is humanity or bestiality, peaceful human coöperation or totalitarian despotism. All plans for a third solution are illusory. - Ludwig von Mises, Omnipotent Government

1945 - But the term planning is also used in a second sense. Lord Keynes, Sir William Beveridge, Professor Hansen, and many other eminent men assert that they do not want to substitute totalitarian slavery for freedom. They declare that they are planning for a free society. They recommend a third system, which, as they say, is as far from socialism as it is from capitalism, which, as a third solution of the problem of society's economic organization, stands midway between the two other systems, and while retaining the advantages of both, avoids the disadvantages inherent in each. - Ludwig von Mises, Planning as a Synonym for Socialism

1949 - Today it is no longer difficult for intelligent men to realize that the alternative is market economy or communism. Production can either be directed by buying and abstention from buying on the part of all people, or it can be directed by the orders of the supreme chief of state. Men must choose between these two systems of society's economic organization. There is no third solution, no middle way.  - Ludwig von Mises, Laissez Faire or Dictatorship

1949  - What alone matters is which system of social organization is better suited to attain those ends for which people are ready to expend toil and trouble.  The question is market economy, or socialism?  There is no third solution.  The notion of a market economy with nonmarket prices is absurd.  The very idea of cost prices is unrealizable. Even if the cost price formula is applied only to entrepreneurial profits, it paralyzes the market.  If commodities and services are to be sold below the price the market would have determined for them, supply always lags behind demand.  Then the market can neither determine what should or should not be produced, nor to whom the commodities and services should go.  Chaos results. - Ludwig von Mises, Human Action

1949 - It is difficult to find out how many of the supporters of interventionism are conscious of the fact that the policies they recommend directly lead to socialism, and how many hold fast to the illusion that what they are aiming at is a middle-of-the-road system that can last as a permanent system—a “third solution.” - Ludwig von Mises, Human Action

1951 - A third solution of the problem would be to confiscate all the profits earned by entrepreneurs for the benefit of the state.  A one hundred per cent tax on profits would accomplish this task.  It would transform the entrepreneurs into irresponsible administrators of all plants and workshops.  They would no longer be subject to the supremacy of the buying public.  They would just be people who have the power to deal with production as it pleases them.  - Ludwig von Mises,  Profit and Loss

1955 - People can consume only what has been produced. The great problem of our age is precisely this: Who should determine what is to be produced and consumed, the people or the state, the consumers themselves or a paternal government? If one decides in favor of the consumers, one chooses the market economy. If one decides in favor of the government, one chooses socialism. There is no third solution. The determination of the purpose for which each unit of the various factors of production is to be employed cannot be divided. - Ludwig Von Mises, Inequality of Wealth and Incomes

1957 - When people who aim at the substitution of socialism for the market economy advocate interventionist measures, they are consistent from the point of view of their aims. But those people are badly mistaken who consider interventionism as a third solution of the problem of society's economic organization, a system which, as they say, is as far from socialism as from capitalism, while combining what is "good" in each of these two systems and avoiding what is "bad" in them. Ludwig von Mises, Economic Freedom in the Present-Day World

Can You Spot the Awesomeness?

Last year I wrote an entry on absurdity spotting.  Absurdity spotting in a pragmatarian system would mean that taxpayers could choose not to allocate any of their taxes to any "absurd" government organizations.  This post will look at the flip side...awesomeness spotting.

Earlier in the year the New Yorker magazine published an article called The Hot Spotters.  The article covered an innovative effort to reduce healthcare costs by ensuring that the costliest patients received proper care.  One of the main people engaged in this effort, Jeffrey Brenner, calculated that the top 1% of patients in the New Jersey community of Camden accounted for 30% of the healthcare costs.  By providing these costly patients with proper care Brenner was able to demonstrate significant results.  Part of his challenge though was finding funding...

Outsiders tend to be the first to recognize the inadequacies of our social institutions. But, precisely because they are outsiders, they are usually in a poor position to fix them.

Pragmatarianism would place taxpayers in a perfect position to help fix any inadequacies that they spotted.  If Brenner's awesome efforts can help save taxpayers money...then why not empower taxpayers to directly allocate some of their taxes to support his efforts?  This would extend taxpayers' locus of control and increase their self-efficacy.

With the current system...as healthcare costs continue to rise...congress will either borrow more money or cut funding for public schools.  Brenner's response to this "opportunity cost" was that if we effectively cut healthcare costs then we do not have to sacrifice education or health.

Speaking of awesomeness spotting and schools...here's a transcript excerpt from CNBC's executive vision program...

Simon Hobbs (Host): Andy, your website is very interesting because it allows people to very specifically target who gets what.  Does that change the motivation?
Andy Kaplan (DonorsChoose.org Chief Financial Officer): Yeah, that’s right Simon.  At DonorsChoose.org we connect people like you with class room needs across America.  So at our site, any teacher at a public school can post a project that he or she wants to do with their classroom.  They describe it, they describe the school and people like you and I visit DonorsChoose, we select a project that speaks to us, and we fund it.  When the project is funded, DonorsChoose takes the money, we buy the materials, we ship them to the classroom, the teacher does the project, takes pictures, the kids right thank you notes, and we send all that back to the donor.  So the beauty is, the donor knows the investment they made in the classroom, and they get to see the feedback.
Simon Hobbs (Host): Mathew, how powerful is this connectivity?  It’s a game changer in terms of bringing in corporations in that you partner with…it’s huge isn’t it?
Matthew Bishop (‘Philanthrocapitalism’ Co-Author):  Yeah, I think technology is the great story about philanthrocapitalism because it solves two problems.  One, it allows us to have much greater idea where our money is going and what use it’s being put to.  And the second is it’s giving the people we’re trying to help a real voice to actually say whether we’re providing the help we say we’re providing.  So DonorsChoose is fantastic, you know you get these letters back from these school kids and you really think, well I’ve done something tangible.  But they actually have a really clever search process as well…a bit like Amazon recommending you books to read.  You like this, well you’ll like this.  So they actually very quickly figure out what kind of classroom projects you like and keep hitting you with more of them.  And it’s very effective as a donor you really feel well, I like this organization.

Wouldn't taxpayers like to know the investment they made in America?  Wouldn't taxpayers like to have a real voice?  Pragmatarianism would empower taxpayers to directly connect with the government organizations that they value.  Adding that essential element of "choice" will help taxpayers feel the tangible positive impact of their taxes.

Without that element of choice, taxpayers will continue to be nothing more than donors completely alienated from their altruism.

Here's a passage from the end of the New Yorker's article...

Critics say that it’s a pipe dream—more money down the health-care sinkhole. They could turn out to be right, Brenner told me; a well-organized opposition could scuttle efforts like his. “In the next few years, we’re going to have absolutely irrefutable evidence that there are ways to reduce health-care costs, and they are ‘high touch’ and they are at the level of care,” he said. “We are going to know that, hands down, this is possible.” From that point onward, he said, “it’s a political problem.” The struggle will be to survive the obstruction of lobbies, and the partisan tendency to view success as victory for the other side.

How absurd would it be if donors to PETA and donors to the NRA had to pool their donations and elect representatives to decide how to split the money between the two organizations?  The obvious result of such a system would be hyperpartisan obstructionism.  To fix the public sector we should take note of what works in the private sector...choice!

With a pragmatarian system the public healthcare debate would be a moot point.  Taxpayers would be able to choose to directly allocate as much or as little of their taxes as they wanted to Medicare or Medicaid.  The demand for public healthcare would determine the supply of public healthcare and the supply of public healthcare would determine the percentage of the population that qualified for coverage.  Merit, rather than political muscle, would determine which government organizations received funding.

If we empower taxpayers to support the government organizations that they know are awesome and we don't force them to support the government organizations that they know are absurd...then the resulting division of labor will produce awesomeness all around.

The yin and yang of life is the absurdity and awesomeness of public goods.

It Wasn't My Idea

When I was in elementary school I was always getting in trouble for reading books during class.  Nope, not comic books...but books from the class library [1].  I would read pretty much any book that I got my hands on. My friends had it good because I would read a ton of books and then share with them only the very best of the best books.  Music was also eventually added to the same filter-sharing process.

If a friend enthusiastically mentioned that they got so and so's new book or CD I would jokingly ask them who told them about that author/band...even though we both knew that it was me.  Sometimes, just to give them a hard time, I would claim credit for an author/band that I hadn't told them about.

One band I definitely did share with friends was Ben Folds. He has a song called Rockin The Suburbs in which he strongly disclaims the idea of slavery...

In a haze these days
I pull up to the stop light
I can feel that something's not right
I can feel that someone's blasting me with hate
And bass
Sendin' dirty vibes my way
'Cause my great great great great Grandad
Made someones' great great great great Grandaddies slaves
It wasn't my idea
It wasn't my idea
Never was my idea

Some things we deserve credit for, some things we'd like credit for and some things we don't want any credit for.  In my post...Justification for Government...Debbie H. shared the following comment...

Well, if you only want to figure out how to make stealing be a tad less irritating to the victims of the theft, then go right ahead. But if you want to do that, you can't also claim that your ideas don't affect those who are striving for a voluntary society. Because your idea still requires coercion through the threat of violence on your neighbors.

Pragmatarianism is a combination of taxes (coercion) and the invisible hand (choice).  I definitely can't take credit for either taxes or the invisible hand.

Who gets credit for the idea of taxes?  No idea.  What does come to mind is Jesus's response to the question of whether Jews should have to pay taxes to the Roman occupiers..."Render unto Caesar the things which are Caesar’s, and unto God the things that are God’s".  Two thousand years later and we're still not happy about taxes.  Nothing is certain but death and taxes.

In comparison, there's no question who deserves credit for the invisible hand...Adam Smith.  In his book, The Wealth of Nations, he wrote the following...

By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was not part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it.

What about pragmatarianism?  Do I get credit for that?  Nope, not according to a member of the facebook libertarian group.  A long time ago he'd read a sci-fi story with the same concept.  He couldn't remember the name of the author and for all I know I might have read the same story and totally forgotten about it...at least on the conscious level.  For fun we can complicate the answer a bit.

How much do you have to modify somebody else's creation before you can call it your own?  It's probably an urban legend but I've heard it said that you only need to change one element of a patented invention for it to lose its patent protection.  That doesn't sound right.

In terms of music, back in the day Vanilla Ice took ("sampled") the catchy bass line from Queen's song "Under Pressure" and added it to his song "Ice Ice Baby" [2].  Initially he did not feel the need to give Queen any credit.  In more recent times, I discovered that nearly all Drum and Bass songs are based on a sample of an old song by a group that I'd  never even heard of.  The group was called The Winstons and in 1969 they released a song called "Amen Brother"...the world's most important 6-sec drum loop.

On the visual side of things...Marcel Duchamp's Mona Lisa comes to mind.  The physical changes he made to the Mona Lisa were very minimal...but still more than the changes he made to his Fountain.  The "Fountain" was actually just a urinal placed on a pedestal.  Kind of the same but completely different was Edward Weston's photograph of a bedpan.  In both cases, without any physical changes...the ordinary became extraordinary.  Adam Smith did the same thing when he showed us self-interest in a positive light.

Would I like credit for the invisible hand?  Sure.  Would I like credit for taxes?  Eh.  Just because taxes have been around forever doesn't make them ethical.  But if we remove taxes from the definition of pragmatarianism then we're just left with the invisible hand.  Adam Smith himself recognized the necessity of some coercion.  From The Wealth of Nations...

When a civilized nation depends for its defence upon a militia, it is at all times exposed to be conquered by any barbarous nation which happens to be in its neighbourhood. The frequent conquests of all the civilized countries in Asia by the Tartars, sufficiently demonstrates the natural superiority, which the militia of a barbarous, has over that of a civilized nation. A well-regulated standing army is superior to every militia. Such an army, as it can best be maintained by an opulent and civilized nation, so it can alone defend such a nation against the invasion of a poor and barbarous neighbour. It is only by means of a standing army, therefore, that the civilization of any country can be perpetuated, or even preserved for any considerable time.

Any coercion over what is absolutely necessary to secure our freedom from harm can be considered unethical.  Some people have a narrow definition of harm (negative liberties) while other people have a broad definition of harm (positive liberties).

Whether your definition of "harm" is broad or narrow...pragmatarianism can only positively affect those who are striving for a voluntary society.  Here are three things that I have no doubt of...

1. Voluntary organizations can provide all the same public goods that the state currently provides.    
2. Voluntary organizations can provide most of these goods more efficiently than the state.
3. Opportunity costs would ensure that tax payers would choose the most efficient option.

For example, if voluntary organizations provide better public education than the state does...then less and less people would allocate their taxes to the department of education.  Voluntary organizations can make most state organizations completely redundant.  

[1]Daniel Boone is one person I remember reading about.  There really should be more historical fiction books for kids.   "there is nothing to be learnt from a Professor, which is not to be met with in Books." - Hume
[2]Ok, I'll admit that at the time I could recite all the lyrics from "Ice Ice Baby"