Economic cost

“ We have investigated the laws which determine the value of two classes of commodities: the small class which, being limited to a definite quantity, have their value entirely determined by demand and supply, save that their cost of production (if they have any) constitutes a minimum below which they cannot permanently fall; and the large class, which can be multiplied ad libitum by labour and capital, and of which the cost of production fixes the maximum as well as the minimum at which they can permanently exchange. ”

“ But we must not therefore suppose it to be necessary that the supply should actually be either diminished or increased. Suppose that the cost of production of a thing is cheapened by some mechanical invention, or increased by a tax. The value of the thing would in a little time, if not immediately, fall in the one case, and rise in the other ”

“ Prices must consequently be lower in all other countries, and higher with us, than before the opening of the new branch of trade; and we therefore obtain the commodities of other countries at a less cost, both as we pay less money for them, and as that money is lower in value. ”

“ You say demand and supply regulates value [sic] ; this I think is saying nothing, and for the reason I have given in the beginning of this letter: it is supply which regulates value [228] , and supply is itself controlled by comparative cost of production. Cost of production, in money, means the value of labour as well as profits. Now, if my commodity be of equal value with yours, its cost of production must be the same. But cost of production is, with some deviations, in proportion to labour employed. ”

“ The degree of cheapness, in this sense of the term, depends on the laws of International Demand, so copiously illustrated in the preceding sections. But in the other sense, that of Cost, a country gets a commodity cheaper when it obtains a greater quantity of the commodity with the same expenditure of labour and capital. ”

“ In this very dynamic aspect of modern life, one observes a tremendous increase in demand for the costly and enervating indulgencies of conspicuous expenditure and a more than proportionate decrease in the productive powers which contribute to the synchronous supply of the staples of life. Here, indeed, resides a fundamental problem in national cost accounting. ”

“ If we attempt to ascertain the changes in the cost of production of any commodity from the changes in its money price, the conclusion will require to be corrected by the best allowance we can make for the intermediate changes in the cost of the production of money itself. ”

“ It is the cost of production which must ultimately regulate the price of commodities, and not, as has been often said, the proportion between the supply and demand: the proportion between supply and demand may, indeed, for a time affect the market value of a commodity, until it is supplied in greater or less abundance, according as the demand may have increased or diminished ”

“ The price of all goods rose to the extent that the wages affected were an element in their cost, with some exceptions, as in the case of railway services, in which the Government bore any loss. Prices of food which depended to a great extent on the world market prices were not directly affected to any great extent, being paid for by the realization of foreign securities, by the export of gold and by loans, but they nevertheless continued to rise. ”

“ The price paid by the public greatly exceeds the real cost of production. A very large proportion, often the greater part of the cost to the consumer, goes in railway and other rates and in middle-men's profits. ”

“ There are two modes in which the Cost of Labor, which is correctly represented (money being supposed invariable as well as efficiency) by the money wages of the laborer, may be increased. The laborer may obtain greater comforts; wages in kind—real wages—may rise. Or the progress of population may force down cultivation to inferior soils and more costly processes; thus raising the cost of production, the value, and the price, of the chief articles of the laborer's consumption. ”

“ Cost of Production consists of several elements, some of which are constant and universal, others occasional. The universal elements of cost of production are the wages of the labor, and the profits of the capital. The occasional elements are taxes, and any extra cost occasioned by a scarcity value of some of the requisites. Besides the natural and necessary elements in cost of production—labor and profits—there are others which are artificial and casual, as, for instance, a tax. ”

“ If we are speaking not of the value of money, but of its cost, (that is, the quantity of the country's labour which must be expended to obtain it,) we must add to these four conditions of cheapness a fifth condition, namely, "whose productive industry is the most efficient." This last, however, does not at all affect the value of money, estimated in commodities: it affects the general abundance and facility with which all things, money and commodities together, can be obtained. ”

“ And now let us analyze first the Cost of Labor in this connection, and then second the Cost of Capital, and we shall soon reach radical and unchangeable ground, and find in the sum of these two an aggregate Cost of Production, and also all of the variables that can ever enter into such Cost. It is plain to reason, that only by Labor non-valuable land-pieces ever did or ever can become valuable. ”

“ In the second place, it must be borne in mind that, despite the fluctuations in the prices of commodities, the average price of every commodity, the proportion in which it exchanges for other commodities, is determined by its cost of production. ”

“ Wages and profits represent the universal elements in production, while rent maybe taken to represent the differential and peculiar: any difference in favour of certain producers, or in favour of production in certain circumstances, being the source of a gain, which, though not called rent unless paid periodically by one person to another, is governed by laws entirely the same with it. The price paid for a differential advantage in producing a commodity, cannot enter into the general cost of production of the commodity. ”

“ The first important induction to be made is that where cost of production [pg 269] is low, wages and profits are high. The high productiveness of extractive industries in the United States is the reason why wages and profits are higher here than in older countries. ”

“ To whatever extent it is so, this smaller cost of labor, being not general, but limited to those employments, is just as much a cause of cheapness in the products, both in the home and in the foreign market, as if they had been made by a less quantity of labor. ”

“ If, for instance, the general efficiency of all labor were increased, so that all things without exception could be produced in the same quantity as before with a smaller amount of labor, no trace of this general diminution of cost of production would show itself in the values of commodities. ”

“ Fluctuating scales of prices determined by fluctuating conditions of competition, supply and demand, and power of coercion, will give place to "the fair price" fixed by concerted community action and revised from time to time in order to preserve a right balance with the general scale of cost of raw materials and cost of living. ”

“ As a rule, it is found, that the cost of labor in reference to a given product is the least in those countries, like the United States and Great Britain, in which the rates of nominal wages are the highest; because, it is found also, that a high efficiency of laborers accompanies both as a cause and as an effect high rates of wages. ”

“ Has the progress of wealth and industry no effect in regard to cost of production, but to diminish it? Are no causes of an opposite character brought into operation by the same progress, sufficient in some cases not only to neutralize, but to overcome the former, and convert the descending movement of cost of production into an ascending movement? ”

“ Thus, the division of the cost of trade, and the division of the advantage of trade, are governed by precisely the same principles; and the only general proposition which can be affirmed respecting the cost is, that it is pro tanto a deduction from the advantage. It cannot even be maintained that the cost is shared in the same proportion as the advantage is; because the increase of the demand for a commodity as its price falls, is not governed by any fixed law. ”

“ It is perfectly true, that, in the example already made use of, a rise of profits takes place, while wages, considered in respect to the quantity of labour of which they are the produce, have not varied at all. But though wages are still the produce of the same quantity of labour as before, the cost of production of wages has nevertheless fallen; for into cost of production there enters another element besides labour. ”

“ A pound weight of gold will, in the gold-producing countries, ultimately tend to exchange for as much of every other commodity as is produced at a cost equal to its own; meaning by its own cost the cost in labor and expense at the least productive sources of supply which the then existing demand makes it necessary to work. ”

“ Diminish the cost of production of hats, and their price will ultimately fall to their new natural price, although the demand should be doubled, trebled, or quadrupled. Diminish the cost of subsistence of men, by diminishing the natural price of the food and543 clothing, by which life is sustained, and wages will ultimately fall, notwithstanding that the demand for labourers may very greatly increase. ”

“ VII. Every commodity of which the supply can be indefinitely increased by labour and capital, exchanges for other things proportionally to the cost necessary for producing and bringing to market the most costly portion of the supply required. ”