Production cost

“ Machinery always lessens the cost of a given amount of production, otherwise there would be no motive for its introduction. But, other things being equal, the lessened cost of a commodity broadens the market for its sale. The cheaper a useful commodity is offered, the more the buyers of it the world over. The more and the better the machinery brought in, the more and the cheaper the commodities produced and the broader and better the markets to be supplied; and, therefore, the more and the more skilful the hands needed to tend the machinery and to market the products. ”

“ 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. ”

“ But the cost of the material forming generally a very small portion of the entire cost of the manufacture, the agricultural labour concerned in the production of manufactured goods is but a small fraction of the whole labour worked up in the commodity. All the rest of the labour tends constantly and strongly towards diminution, as the amount of production increases. Manufactures are vastly more susceptible than agriculture, of mechanical improvements, and contrivances for saving labour ”

“ The area over which it could be performed was greatly enlarged, the cost of materials was reduced through cheaper transportation, new devices and processes were developed as a result of the competition, cheaper raw material was obtained from countries where plentiful supplies and cheap labor give low prices, and the opportunity of locating the factory near the place of production or at some convenient meeting point between the various places of production—all these contributed to reduction of cost and increase of supplies of material of manufacture. ”

“ Manufactures are vastly more susceptible than agriculture of mechanical improvements and contrivances for saving labor. In manufactures, accordingly, the causes tending to increase the productiveness of industry preponderate greatly over the one cause which tends to diminish it; and the increase of production, called forth by the progress of society, takes place, not at an increasing, but at a continually diminishing proportional cost. This fact has manifested itself in the progressive fall of the prices and values of almost every kind of manufactured goods during two centuries past ”

“ It has been shown that in the production of grain or other farm commodities the three elements, change in form, change in place, and potential change in time enter; while the factors entering are, nature, labor, and capital. These all must be present no matter which method of procedure is followed in the marketing. The cost of marketing must always be counted in the cost of production. A decrease in the cost of any element or factor will of course have its effect on the cost of the whole process. ”

“ How Cost of Production and Cost of Acquisition are Equalized.—The costs of moving goods from place to place—including in these costs commercial charges and duties imposed by governments—are the cause of most of the manufacturing that is done in the region represented by the left side of the diagram, except the production of such articles for immediate or local consumption as are necessarily made at or near the places where they are used. ”

“ All commodities made by machinery are assimilated, at least approximately, to the wine in the preceding example. In comparison with things made wholly by immediate labour, profits enter more largely into their cost of production. Suppose two commodities, A and B, each requiring a year for its production, by means of a capital which we will on this occasion denote by money, and suppose to be 1000l. A is made wholly by immediate labour, the whole 1000l. being expended directly in wages. B is made by means of labour which costs 500l. ”

“ It will be observed, however, that cost of production "only determines values by operating through the actual or potential supply, and thus that the law of demand and supply is fundamental. Once a thing is made, the actual cost of production has no influence on its value, except as indicating the conditions of future possible supply. ”

“ 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. ”

“ Again, the network of prices which controls the ultimate cost of production of any finished article is so complex that it is difficult in many cases to rule out this or that set of industrial conditions in one country as being without importance for a given factory in another. ”

“ When, therefore, two or more commodities have a joint cost of production, their natural values relatively to each other are those which will create a demand for each, in the ratio of the quantities in which they are sent forth by the productive process. ”

“ 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. ”

“ It does not affect them in the manner vulgarly supposed, by raising them universally; but an increase in the cost of labor lowers profits, and therefore lowers in natural values the things into which profits enter in a greater proportion than the average, and raises those into which they enter in a less proportion than the average. All commodities in the production of which machinery bears a large part, especially if the machinery is very durable, are lowered in their relative value when profits fall; or, what is equivalent, other things are raised in value relatively to them. ”

“ Value runs from finished product to agents of production, labor, and instrumental goods, and land. Avoiding needless complications from a discussion of interest as a factor in cost—a doctrine on which the Austrians, say Wieser and Böhm-Bawerk, are not agreed,—it is enough to point out that high wages or high rents, which limit production in any given industry or establishment, are high because the land and labor in question have alternative uses, because other industries, or other [Pg 71] competitors in the same industry, bid for them. Cost-curves, then, are reflections of demand-curves. ”

“ On the other hand, if any production cannot be largely extended so that the supply in market barely meets the requirements of purchasers, the tendency of normal values is toward the cost of the most costly part of the product required to meet wants. ”

“ The low cost of production which accompanies a doubling of the output will enable the companies who adopt this management, particularly those who adopt it first, to compete far better than they were able to before, and this will so enlarge their markets that their men will have almost constant work even in dull times, and that they will earn larger profits at all times. ”

“ When any circumstance produced a glut in the market, more skill would be directed to diminishing the cost of production; and a portion of the time of the men might then be occupied in repairing and improving their tools, for which a reserved fund would pay, thus checking present, and at the same time facilitating future production. ”

“ Cost of production can be lowered faster in machine or factory products than in farm products. Under the influence of trusts the natural order is not only reversed, but prices of farm products have declined more than twice as fast as prices of factory or trust products. ”

“ If the market price rises high above the cost of production, producers make a profit greater than the average profit made in the country. This induces them, by the appropriation of new land and the employment of new labor and capital, to increase their business. ”

“ On the other hand a large class of farm laborers are purely wage earners.
Whatever be the kind of farmer his income is derived from the sale of his products, less the direct cost of producing them. The direct cost of production includes the labor that he has to buy, the materials that he has to use, and finally the labor and material that he must apply in order to maintain the fertility of his land and the upkeep of his buildings, live stock, machinery, fences, ditches, etc. ”

“ The law of supply and demand is inexorable. What he may do is to improve quality, diminish cost, reduce area, find the best market and the products most sought, and increase the [30] production from a given area. If he raises the yield from 20 to 35 bushels, while the yield of his neighbor remains at 10 bushels and prices remain low, we shall soon see a fine illustration of “the survival of the fittest.” The 35 bushels will yield a fair remuneration for the work expended in production when prices are at the lowest. ”

“ It means more output accompanied with increased efficiency and therefore lower cost of production. It is on cheapness of output that the demands of the home and the foreign consumer for commodities largely depend. ”

“ If the operating expense decreases at a less rate than does the productive output, then these tell-tale percentages automatically increase also, which the manager is quick to note, and mean a falling-off in the economy with which the plant is being operated, for increased expense means increased cost of production. ”

“ 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. ”

“ Now it is said that we ought to buy of him and pay him a price 15 to 120 per cent. higher than we need pay the foreign manufacturer, even if he is a six-foot, bearded "infant," because the cost of production is necessarily higher here than anywhere else. ”

“ Materials used in getting ready or seasoning the raw material, i.e., auxiliary material, such as paint, putty, etc., the quantity of which used on each piece of product cannot be measured with exactitude and must therefore be spread over the entire product—these and similar items constitute manufacturing supplies. They are usually treated as a part of factory expense rather than as belonging to prime cost. ”

“ The third item or element which goes into the cost of manufacture is factory expense. Under this head are included all the costs of manufacture excepting the prime cost elements of materials and direct labor. Indirect labor, factory supplies, light, heat, power, repairs and maintenance to factory buildings and equipment, depreciation on factory buildings and equipment, rent, insurance, etc., constitute the main items under this category. ”