Contributions to economic thought Opportunity cost The opportunity cost doctrine was first explicitly formulated by the Austrian economist Friedrich von Wieser in the late 19th century. Opportunity cost is the cost of any activity measured in terms of the value of the next best alternative foregone (that is not chosen). It is the sacrifice related to the second best choice available to someone, or group, who has picked among several mutually exclusive choices. Although a more ephemeral scarcity, expectations of the future must also be considered. Quantified as time preference, opportunity cost must also be valued with respect to one’s preference for present versus future investments. Opportunity cost is a key concept in mainstream economics and has been described as expressing "the basic relationship between scarcity and choice". The notion of opportunity cost plays a crucial part in ensuring that resources are used efficiently. Capital and interest The Austrian theory of capital and interest was first developed by Eugen Böhm von Bawerk. He stated that interest rates and profits are determined by two factors, namely supply and demand in the market for final goods and time preference. Böhm-Bawerk's theory equates capital intensity with the degree of roundaboutness of production processes. Böhm-Bawerk also argued that the law of marginal utility necessarily implies the classical law of costs. Some Austrian economists therefore entirely reject the notion that interest rates are affected by liquidity preference. Inflation In Mises's definition, inflation is an increase in the supply of money: Hayek pointed out that inflationary stimulation exploits the lag between an increase in money supply and the consequent increase in the prices of goods and services: Economic calculation problem The economic calculation problem refers to a criticism of planned economies which was first stated by Max Weber in 1920. Mises subsequently discussed Weber's idea with his student Friedrich Hayek, who developed it in various works including The Road to Serfdom. What the calculation problem essentially states is that without price signals, the factors of production cannot be allocated in the most efficient way possible, rendering planned economies inefficacious. Austrian theory emphasizes the organizing power of markets. Hayek stated that market prices reflect information, the totality of which is not known to any single individual, which determines the allocation of resources in an economy. Because socialist systems lack the individual incentives and price discovery processes by which individuals act on their personal information, Hayek argued that