John Adams, Thomas Jefferson, and the Barbary Pirates: an Illustration of Relevant Costs for Decision-Making
John Adams, Thomas Jefferson, and the Barbary Pirates:
An Illustration of Relevant Costs for Decision-Making
1) Adams calculates costs under three alternative policies: (1) negotiate with the Barbary States; (2) wage war against the Barbary States; and (3) do nothing. Under the first two scenarios, his cost calculation represents projected cash outflows for the U.S. government. The “do nothing” scenario, however, includes some “costs” that would require no cash outlay by either the government or its citizens. What is the relevance of this third cost calculation, and what is the relationship of the cost of “doing nothing” to the other two costs calculated by Adams? a. The opportunity cost for the “do nothing” scenario would encompass the possible loss of goods and cargo as well as the potential loss of lives of the ships crews. Additionally, cost to continue shipping within the known shipping channels of the Barbary pirates would continue to increase due to the heightened treat level. 2) How does Jefferson derive the amount of 22,500 pounds sterling per annum, and what does he mean by the statement: “we have a right to say that only 22,500 pounds . . . should be charged to the Algerine War”? a. Jefferson concludes that half of the total cost of 45,000 £ sterling would be allocated for the Algerine War due to the possibility of the ships being in the dockyard rather than in full service. Jefferson was simply allocating the costs of the war in terms of accounting allocations per asset capitalization and depreciation. 3) Evaluate Jefferson’s reasoning in his 1822 letter. Do you agree with his logic? This letter does not specifically identify the cost of building the fleet, but it does compare the construction cost to the cost of maintaining the fleet. If the U.S. had taken Jefferson’s advice, and burned its fleet in 1822, the cost to build a new one might have differed from the cost of building the original fleet. What is the
An Illustration of Relevant Costs for Decision-Making
1) Adams calculates costs under three alternative policies: (1) negotiate with the Barbary States; (2) wage war against the Barbary States; and (3) do nothing. Under the first two scenarios, his cost calculation represents projected cash outflows for the U.S. government. The “do nothing” scenario, however, includes some “costs” that would require no cash outlay by either the government or its citizens. What is the relevance of this third cost calculation, and what is the relationship of the cost of “doing nothing” to the other two costs calculated by Adams? a. The opportunity cost for the “do nothing” scenario would encompass the possible loss of goods and cargo as well as the potential loss of lives of the ships crews. Additionally, cost to continue shipping within the known shipping channels of the Barbary pirates would continue to increase due to the heightened treat level. 2) How does Jefferson derive the amount of 22,500 pounds sterling per annum, and what does he mean by the statement: “we have a right to say that only 22,500 pounds . . . should be charged to the Algerine War”? a. Jefferson concludes that half of the total cost of 45,000 £ sterling would be allocated for the Algerine War due to the possibility of the ships being in the dockyard rather than in full service. Jefferson was simply allocating the costs of the war in terms of accounting allocations per asset capitalization and depreciation. 3) Evaluate Jefferson’s reasoning in his 1822 letter. Do you agree with his logic? This letter does not specifically identify the cost of building the fleet, but it does compare the construction cost to the cost of maintaining the fleet. If the U.S. had taken Jefferson’s advice, and burned its fleet in 1822, the cost to build a new one might have differed from the cost of building the original fleet. What is the