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.

Economists 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.

Economics brings into view that conflict of choice which is one of the permanent characteristics of human existence.

Lionel Robbins

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 choosing one 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.

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