One of the ways economists and normal people mutually drive one another crazy is by having firm but incompatible views on the nature of cost. In colloquial language, "cost" is measured in dollars unless it's being used in a somewhat poetic sense. To economists, the "cost" of a decision is whatever benefit is forgone by making it (sometimes called “opportunity cost”). Uber and fixed-price taxis both charge more when it's rainy, or at 1am on New Years Day. One charges more money, the other charges more time, but either way the supply/demand imbalance means that customers are paying more for the same service.

Depending on your political persuasion, you'll notice this complicated way to think about costs—and especially about things being "free"—as the hallmark of either politics or marketing. Free healthcare gets paid for through some combination of taxes and rationing, with the mix between the two being a function of turnout amount young, healthy taxpayers and elderly healthcare consumers.¹ Meanwhile, a classic marketing trick is to throw the word "free" into as many offerings as possible. "Free" can mean that one product of uncertain value is bundled with one of known value, such that it's hard to compare the bundle—a Happy Meal is incommensurable with a kid's meal at a random restaurant because the value of the toy is apparently incalculable. In other cases, "free" refers to something with no immediate monetary cost, but a future cost in time and convenience. A classic instance of this is any enterprise-facing company that offers an industry whitepaper for the low, low cost of a company email address, full name, job title, and phone number.

This broader concept of cost explains some instances of what would otherwise look like corporate profligacy. Flying economy is a great symbol of tight-fistedness, but it's also simply a less pleasant experience than a business-class seat. So there's a cost in terms of dollars that offsets a cost in terms of morale, on-plane work output, productivity-attenuating backaches from sitting weirdly in an uncomfortable seat for several hours, reduced mental acuity and disheveled physical appearance in an important meeting after a red eye flight etc.

It also applies neatly to the world's most hated but most relied-on business model: giving digital products away for free, and supporting this practice with ads. This model annoys people a lot, because the ads are so salient, but they don't notice the absence of hypothetically possible services that eschewed this model and thus don't exist at all. Ads are annoying, and interruptive: they impose a cost on the user, and that imposes a cost on the platform in the form of lower engagement. So there's an invisible alignment of incentives. For a given amount of revenue, platforms prefer the least annoying ads, and the ones that can slow the ad-driven degradation of their platform will tend to have the biggest userbase over time.

Costs are also worth considering on, well, the cost side. Consider a company that's using one vendor for video conferencing and another for an office suite. The office suite company pitches its conferencing product, and the conferencing company mentions that it has a decent office suite. How does their customer decide which to choose, or whether to maintain the status quo? The traditional cost consideration, i.e. which company offers a lower price, is a factor. But it's best thought of as an emergent property of the actual transaction in question, which is trading off between the benefits of vendor consolidation and the risks of relying on a single seller. The year-one cost matters, but what really matters is that if there are two sellers, there's less convenience—"one throat to choke" is an idiom that could only have been coined by someone who, at least temporarily, meant it—but if there's one vendor who controls multiple mission-critical processes, that vendor is probably able to push through one price increase after another.

It's entirely possible to get lost in these kinds of discussions. At the end of the day, dollars change hands, and even the intangible costs and benefits of certain transactions can also be captured in dollars (one cost of a last-minute meeting is the potential inconvenience of leaving behind an iPhone charger; that cost can be translated into dollars because delivery services are happy to transport such goods to arbitrary destinations on short notice). In fact, the more complete a market is, the more likely it is that costs show up purely in dollar terms and are instantly reflected in prices: if a company pays some dollar cost for an acquisition, but also pays the intangible cost of making a strategically boneheaded choice that will distract management for quarters or years on end, one of the places that that cost shows up in is their stock price, which promptly discounts the present value of future cash flows forgone due to distraction.

But it's a good mental exercise to continuously ask: what's the full cost picture? Which things are being captured in price, and which are being ignored? A free bus system is nice, but it's also a system where the bus is no longer a place where you can be free from people who were previously deterred by the prospect of spending $2. A free trial is mostly offered by companies that know that their prospective customers will convert (and tolerate the handful who abuse it). Anyone who talks about dollars has a reason to do so, just as anyone who focuses on intangible reasons to buy something is going to have a tangibly higher price point once they reveal it.

But in the end, costs describe the interface between all economic actors; they're a measure of what people get up to get what they want, which means that they're a minimum measure of the value of whatever it is that those people want.

In The Diff, we’ve covered costs and intangible costs in a few different ways:

• The airline business illustrates the cost tradeoff between paying for redundancy and paying in customer annoyance: the airlines that are better at monetizing loyalty make a different set of decisions from the rest.

• Forward-deployed engineers are a way to get cheap R&D that's booked as cost of sales ($).

• When different companies pay different costs for the same inconvenience, inflation ends up subsidizing the scaled consumer-facing companies in fragmented industries ($).

• The cost of regulation is measured in both dollars and time.

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1  This tradeoff is separate from the question of whether access to healthcare is a human right, or which kinds are best provided by the state versus the private sector. In markets, prices are the default rationing mechanism for services requiring lots of specialized labor, but governments need some other mechanism. They have to limit access to some kinds of healthcare, and the redistributive function of a tax is to ration everything else we might consume, so that more resources are available for healthcare.