Well Put My Friend

This comes from page 40 of the Liberty Fund edition of Cost and Choice by James Buchanan-

In one sense it might be said that the neoclassical economist has succumbed to the temptation to make his whole theory more general than its methodology warrants. This temptation has been increased by the parallel, and equally confused, logical theory of economic choice, which itself is completely general but which lacks predictive content. This purely logical theory, sharply distinct from the classical in its predictive implications, finds its origins in the subjective-value theorists, but its more explicit sources are Wicksteed, the later Austrians, and the economists associated with the London School of Economics. In full flower, this is the “subjectivist” economics espoused by Hayek and Mises to which I earlier made reference. Some reconciliation between the genuinely scientific theory of economic behavior and the pure logic of choice is required. The achievement of this reconciliation is one of the major purposes of this exploratory study in which the notion of opportunity cost becomes the analytical coupling device.

Cost and Choice is Buchanan's attempt to topple the dominant cost theory, which separates cost from choice. All textbooks start out by defining cost as forgone opportunities. However, soon they start talking about costs in an objective sense, such as the costs that a firm faces. This is completely separate from the original logic of choice.

Neoclassical (or Samuelsonian) economists make this sacrifice to have predictive power. A purely subjective theory has can predict little. However, they then make the mistake of drawing normative conclusions from this framework. Buchanan thinks this is too great of a task for this method.

Buchanan's proposal, if taken seriously, requires a renewal of much of the normative understanding of economic theory. Traditional welfare economics is impossible under Buchanan's method, which might be why so many are afraid of it.

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