Last week we talked about our fallen-ness and the implications that has for our lives on earth. Economics helps us understand how to flourish in spite of our fallen-ness. It helps us deal with our world where abundance in everything no longer exists. Rather, scarcity abounds.
One of the most famous lines you hear from economists is “There is no such thing as a free lunch.” It means that nothing is ever truly free. When someone takes you to lunch and pays for your meal, you’ve still made an investment. You gave your time and energy to be there. You chose that lunch over a variety of other things you could have done. The lunch had a cost, even if the cost was lessened by your friend paying the tab.
That cost is the foregone opportunity, it implies sacrificing something I could have had for what I chose. Economists refer to this as an “opportunity cost. “
As James Gwartney describes it in Common Sense Economics:
The opportunity cost…is the value you place on the items that must now be given up because you spent the money on the initial purchase.
For example, if I have five dollars in my wallet and I am deliberating between getting a slice of pizza for lunch or going to Starbucks, and I choose Starbucks, the opportunity cost is the slice of pizza. It’s what I gave up for my coffee. Opportunity cost is relative to the person making the choice. All of us would have different preferences over how to use that same five dollars.
Awareness of these types of costs is critical to the economic way of thinking. It helps us navigate a world where choices are hurled at us constantly. Life becomes busy because there are so many ways to spend our time.
It used to be that there was solitude in a car ride. You could have that time to reflect, pray, plan your day or perhaps listen to music. Now, we can also listen to an audio book, dictate a grocery list on a smartphone and have a business meeting via conference call. None of those choices have an outward price, but they all impose opportunity costs.
Using economics to help us think about our choices helps us understand that all of our choices are precious (they have meaning and imply sacrifice) and need to be made with intentionality (awareness of the foregone opportunities). This should take on special meaning for Christians. If we truly are to do everything to the glory of God, then we must let go of the notion that there is a free lunch.
So whether you eat or drink or whatever you do, do it all for the glory of God. (1 Corinthians 10:31)
If something is truly free, there is no need to count costs. In a fallen world, all of our choices bear costs. Awareness of these costs will help us be intentional about how we donate our time, money and energy. This new cost accounting can make our choices more fruitful and is one way we can become better stewards. We will address the broader notion of stewardship in my next post on economics.
Question: How did you apply the theory of opportunity cost to your choice of vocation? Leave a comment.
- Part 1: Economics: A Tool for Navigating a Fallen World
- Part 2: No Free Lunch: Why Understanding ‘Opportunity Cost’ Matters
- Part 3: Understanding Economics as Stewardship
- Part 4: Decision-Making on the Margin
- Part 5: People Value Different Things
- Part 6: The Knowledge Problem Triple-Whammy
- Part 7: How Prices Harness Knowledge
- Part 8: The Miracle of the Market Process
- Part 9: What is Your Advantage?
- Part 10: How Trade Allows Us to Serve Others
- Part 11: Is the Economy a Pie?
- Part 12: How to “See” the Unintended Consequences
- Part 13: We Need to Consider Consequences
- Part 14: Four Lessons of Economics: A Case Study of JP Morgan
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