From “Tired Muscles” to “Might-Have-Beens”: A Debate on the Nature of Costs in the Late Nineteenth Century

Abstract

This article explores a debate on the theory of cost that occurred in the 1890s between economist Silas MacVane and Austrian economists. MacVane defended the idea of objective “real cost” and the Austrians argued for subjective opportunity cost. Although this debate is rarely mentioned, it represents a noteworthy episode of active contrast between ideas on value and on cost, with implications that are relevant for contemporary economists. By highlighting the incompatibility of the objective and subjective conceptions of cost, this debate sheds light on the evolution of economic theory. The contributions of relatively unknown authors, such as MacVane and David Green, are also discussed. We interpret the debate in terms of the contrast between research programs based on wealth and on exchange, and note that the gradual shift in the period regarding the fundamental problem that informs economic theory is key to understanding the modern concept of cost.