Two weeks, fifteen days, 360 hours. That’s all that stands between Buenos Aires and me. The end of my “European adventure” is drawing near, and naturally, I’m in an introspective mood. I’ve been pondering over what this whole experience, since I first left Argentina to go to Switzerland, has left me… and all the things that it has left me without. The latter seems to be the crux of the matter for me these days, not in terms of evaluating the choices I’ve made, but in planning what I want to do from now on. As economists would say, I’m trying to figure out my opportunity costs, the chances foregone as the result of favouring one course of action over other available alternatives.
According to Murray Rothbard, the first to approach the concept of opportunity cost was Cardinal Hortensis, in the thirteenth century. Confronted with the dilemma on whether charging a rate of interest on loans was fair or not, he put forward the idea of lucrum cessans: the compensation every creditor deserved for the profit he could have won investing the money instead of lending it. In the centuries to follow, this notion was taken on by Alexander Bonini and Astesanus, and expanded by San Bernardino of Siena, who suggested that the legitimacy of lucrum cessans resided in the fact that money was not always sterile and that as capital, it should command a profit. However, this was limited to loans made out of charity, and professional money-lenders were out of the question. It was not until Leonard Lessius and his De Justitia et Jure (1605) that this charity limit was cast aside, making lucrum cessans applicable to any people with liquid funds lending to any people lacking them. The usury debate did not end with this, of course, but it certainly lost the relevance it had previously had.
However, opportunity costs are much more than what lucrum cessans stands for. So let’s move a little ahead in time, to eighteenth century France to be more precise, where we can find a more comprehensive approximation in the writings of Richard Cantillon and Anne Robert Jacques Turgot. In his Essai sur la nature du Commerce en Général, Cantillon shows impressive insights about entrepreneurs, and how their activity is based on the subjective evaluation of the costs and forecasted benefits of the different alternatives they face. He calls intrinsic value the gains that would have been obtained through the unchosen courses of action. That is to say, the value-measure of the activity to be pursued is the forfeited profit of the options left unexplored. In a very similar train of thought, Turgot talks of fundamental value as the things a person has to sacrifice in order to do what he chooses.
In the year 1889, Friedrich von Wieser published his famous Natural Value, and the Austrian concept of opportunity cost came out full-fledged. As Ernest C. Pasour puts it: “The opportunity cost of any decision represents the value of opportunities foregone as a result of the decision made. Cost involves the conscious sacrifice of an available opportunity by the decision-maker. (…) This cost as it influences choice is based on the decision-maker’s anticipations and cannot be discovered by any other person. Thus, as recognized and emphasized by the Austrians, the opportunity cost of any activity is inherently subjective.”
So there you have it. The thing that has been troubling me for days, the reason for my insomnia. Particularly, I’ve been asking myself whether I should keep moving around or settle down. And the problem is that I always reach the same conclusion: I want both. Getting to see different parts of the world, meeting people, growing professionally by acquiring experience in international hotels, learning new languages, these are but a few of the things that I love about a wandering life. It’s exciting, rewarding, motivating… and yet, there’s also the downside. Moving around means being away from the people you love. It means missing all those little seemingly unimportant details that make up their daily life, and the loss of intimacy that comes as a direct consequence. It means not being there for your friends and family when they need you, and not having them around when you are the one in need. It means longing for that particular person, dreaming of his presence, and waking to find him thousands of miles away. It means loss, because not all the people you left are there when you get back. It means evanescence, since the relationships you build with people and places are bound to be transitory. Of late I’ve been craving the delights of sedentary life. But then again, when thinking of the things I’d have to leave behind, I’m not so sure anymore. I’ve been trapped in quite a delicate conundrum.
And then Georgia came to my rescue. Sweet, beautiful, Georgia on my mind. My favourite song. Suddenly, my perspective changed, and I stopped analysing everything in terms of opportunity costs. Mainly, I refuse to accept that I have to give up on my dreams of a home just because I also dream of seeing the world. Settling down is my Georgia, and it comes to me “as sweet and clear as moonlight through the pines”. I might now be choosing something else, I might pursue other ambitions, still the ultimate goal of building a family and finding a place to call home remains. In time, I will get there. Meanwhile, I’ll just enjoy the ride.
Here’s a very short list of things that you might find interesting on the subject
Georgia on my mind, by Carmichael and Gorrell: The lyrics of this beautiful song.
Cost and Choice: Austrian vs. Conventional views, by E.C. Pasour, Jr: A very interesting paper contrasting the objective approach to cost measurement defended by the Classics, and the subjective one proposed by the Austrians. Pasour also shows how these differences can be translated into each school’s methodology and assessment of economic regulation and efficiency.
Richard Cantillon and the discovery of Opportunity Cost, by Mark Thornton: This paper highlights several contributions to economic theory of the neglected Cantillon, and that’s the main reason why I find it worth reading.
An Austrian perspective on the History of Economic thought Volume I: Economic thought before Adam Smith, by Murray N. Rothbard: I find that Rothbard has nothing original to contribute, but this is a fantastic bibliographical read and I found an incredible amount of interesting books among Rothbard’s quotations. Furthermore, you can expand on the genesis of the concept of costs of opportunity if you are interested (which I’m guessing you’re not, unless you’re as much of a nerd as I am).
The Godfather I, II and III, by Francis Ford Coppola: I have to stay in bed because of an injured foot, so I decided yesterday to see these movies and was blown away. I could not think of any clearer example of what costs of opportunity mean. Memorable quote: “It is the price we pay for the life we choose.”
My boyhood dreams, by Mark Twain: A delicious essay, in which Twain describes perfectly the subjective assessment of costs.