In Capitalism: A Treatise on Economics, George Reisman wrote:
Contemporary economics, in contrast, continually ignores the vital connection of income and cost with the receipt and outlay of money. It does so insofar as it propounds the doctrines of “imputed income” and “opportunity cost.”
Reisman is one of the best living Austrian economists. He studied under Ludwig von Mises personally. He covers opportunity costs at much more length in his book.
But, ignoring Reisman while offering no rebuttal, the Mises Institute is putting out confused claims about opportunity costs. In 2023 they tweeted a short video with the text:
The proper way to think about costs is not simply to consider the money we're spending on a certain item, but all of the other possibilities we're giving up in order to obtain that item. http://BeginEconomics.org
Their Begin Economics website (released in 2020) says:
When we think about “cost,” we often think about prices, such as comparing the prices of cars. But the proper way to think about costs is not simply to consider the money we're spending on a certain item, but all of the other possibilities we're giving up in order to obtain that item.
What Hazlitt described is called opportunity cost. The money spent on the new window is not simply the dollar price of his purchase, but of all the goods and services he could have purchased with that money.
They call an opportunity cost “money spent”. From a literal-factual perspective, it isn’t. They also seem to suggest summing every foregone alternative. And they put Hazlitt’s name all over their errors.
They also link to Per Bylund (a Senior Fellow of the Mises Institute) writing in 2019:
The concept of economic cost seems to confuse people. It is not the price you pay for a good, but the reason you pay it.
The cost of one action is the value you could otherwise have gained from taking another action.... The cost of it is not the $100, which you give up to purchase it, but the value of the other good, which you can no longer purchase. That other good is the opportunity foregone by your action, the true cost of your action —the economic cost.
This doesn’t make sense. The reason you’re willing to pay a price for a good because of the benefits the good provides, not due to the cost.
And when you trade $100 for a good, then the $100 is the cost. It’s the thing you gave up in exchange for the good.
When trying to understand how useful $100 is (and therefore better understanding the cost), it helps to consider alternatives that you could buy with $100. But that doesn’t mean those alternatives are the cost. The cost you paid was the money.
The Mises Institute made no effort to give counter-arguments to Reisman’s criticism of opportunity cost. Nor will they listen to my criticism, nor do they have any organized debating policies so that I or anyone else could debate them and correct their error (or, in the alternative, learn why they’re actually right).
Also, the wordings they use differ every time and are sloppy and confusing. Even if they were right about the main point, they’re so imprecise it’s problematic. Most scholars and institutions are like that, and it’s a huge problem.
Also, the Mises Institute seems to be influenced by mainstream, conventional economics, rather than advocating for something different and separate. It’s sad to see the Austrian school of thought embracing mainstream errors. The loss in intellectual diversity, and lack of critical outsiders, is bad.
Quoting from Capitalism again regarding opportunity costs:
The treatment of the subject by [popular, mainstream economics textbook authors] Samuelson and Nordhaus is typical:
. . . the economist generally includes more items in cost than do accountants or businesspeople. Economists include all costs—whether they reflect monetary transactions or not; business accounts generally exclude nonmonetary transactions. We have already encountered . . . examples of true economic costs that do not show up in business accounts. The return to an owner’s effort, the normal return on contributed capital to a firm, a risk premium on highly leveraged owner’s equity—these are all elements that should figure into a broadly conceived set of economic costs but do not enter business accounts. . . . The notion that can help us understand this distinction between money costs and true economic costs is the concept of opportunity cost. The opportunity cost of a decision consists of the things that are given up by taking that particular decision rather than taking an alternative decision.
Note that the “true cost” wording was repeated by Per Bylund. Capitalism continues:
The opportunity cost of a decision is subsequently described as “the value of the best available alternative.”
That’s what I thought the Mises institute meant but didn’t say. They said to consider the cost of all alternatives, not just the best one.
And this opportunity cost stuff is included in a 30 minute beginner lesson. This is one of the highest priority things they want to say. Why? Is it useful? Or does it seem “mind blowing” to people precisely because it’s clever/confusing/counter-intuitive? Unfortunately, a lot of the lesson is actually even worse, because it’s tribalist politics. They say the site is an educational effort that respects your time but then they actually focus on their own agendas.