The Ultimate Standard of Value [6]
at one and the same time, be adjusted in both senses according to the cost. In that event the price of the commodity A would at one and the same time be higher and lower than the price of the commodity B. Our most pressing problem, therefore, is to find a solution for that preliminary question, to which we have referred, a question which finds statement in the title of the following chapter.
III. For Which of the Different Meanings of the Word "Cost" is it Really True That, According to The Experience of Industrial Life, Prices Adjust Themselves According to Cost
It is undoubtedly true for the value sum of the synchronously reckoned cost; or for what Professor Marshall calls the "money cost of production." This is the cost from which, in practical life, the "law of cost" receive its most direct and effective confirmation. The action of the merchant is determined by the amount which he must expend for all the necessaries of production. If the price of the ware is not sufficient to cover this outlay, he cease to bring the ware to market; conversely, if the price yields a fair surplus over and above this outlay, the producers increase the supply until the price, in the above sense, is adjusted according to the cost. It is therefore, from the standpoint of the practical man's estimate of the money cost of production, that the "law of cost" is always demonstrated. Even such writers as Professor Marshall have recourse in the first instance, to this method of proof.(15*) We do not mean to say that this "law of cost" is only true for the synchronous method of reckoning money cost. On the contrary, it is in a certain sense applicable also to the historically reckoned cost; and it is this extension of it which, since the time of Adam Smith, has excited the greatest interest among writers on the theory of value. The only question is, to which of the different conceptions that are included under the historical method of reckoning cost may this be applied. There is no doubt that it is true -- in that approximate way in which any "law of cost" can be true -- of the primary elements of cost, labor and abstinence, measured according to their value. We might put this in a more concrete form as follows: In those goods that generally obey the "law of cost," the price of the finished product tends to an approximate equality with the total sum, that must be expended in wages and interest during the whole course of its production. This proposition, I believe, is common to all theories of value including the classical (see A. Smith and J.S. Mill), and really follows as a logical consequence from the older theories. We have said that the price, say of cloth, tends to adjust itself to the money cost of producing cloth. This consists in part of the wages and interest, which are paid directly in this industry (the wages of weavers); also, in part, of the money expended for the consumption and durable goods sacrificed in its production, for instance, the yarn consumed. But here again, the money price of yarn, according to our proposition, would tend to adjust itself to the spinner's money cost. This again consists, in part, of interest and wages of spinners, and in part, of the money expended upon consumption and durable goods, say the wool consumed. It is manifest that the analysis may be continued in this way until finally the money cost of every single stage of production is resolved into interest and wages. In so far as the price of the finished product or of the intermediate products (cloth, yarn, wool, etc.), actually conform to their money cost of production, they cannot fail, in the end, to coincide with the total sum of the interest and wages expended in their production. Or what is the same thing, they will agree with the total outlay of the original elements of production-labor and abstinence-rated according to their value or price. The primary outlay in production, especially the labor, to whose consideration we will, for the sake of brevity, confine ourselves, can, as we know, be measured by other
III. For Which of the Different Meanings of the Word "Cost" is it Really True That, According to The Experience of Industrial Life, Prices Adjust Themselves According to Cost
It is undoubtedly true for the value sum of the synchronously reckoned cost; or for what Professor Marshall calls the "money cost of production." This is the cost from which, in practical life, the "law of cost" receive its most direct and effective confirmation. The action of the merchant is determined by the amount which he must expend for all the necessaries of production. If the price of the ware is not sufficient to cover this outlay, he cease to bring the ware to market; conversely, if the price yields a fair surplus over and above this outlay, the producers increase the supply until the price, in the above sense, is adjusted according to the cost. It is therefore, from the standpoint of the practical man's estimate of the money cost of production, that the "law of cost" is always demonstrated. Even such writers as Professor Marshall have recourse in the first instance, to this method of proof.(15*) We do not mean to say that this "law of cost" is only true for the synchronous method of reckoning money cost. On the contrary, it is in a certain sense applicable also to the historically reckoned cost; and it is this extension of it which, since the time of Adam Smith, has excited the greatest interest among writers on the theory of value. The only question is, to which of the different conceptions that are included under the historical method of reckoning cost may this be applied. There is no doubt that it is true -- in that approximate way in which any "law of cost" can be true -- of the primary elements of cost, labor and abstinence, measured according to their value. We might put this in a more concrete form as follows: In those goods that generally obey the "law of cost," the price of the finished product tends to an approximate equality with the total sum, that must be expended in wages and interest during the whole course of its production. This proposition, I believe, is common to all theories of value including the classical (see A. Smith and J.S. Mill), and really follows as a logical consequence from the older theories. We have said that the price, say of cloth, tends to adjust itself to the money cost of producing cloth. This consists in part of the wages and interest, which are paid directly in this industry (the wages of weavers); also, in part, of the money expended for the consumption and durable goods sacrificed in its production, for instance, the yarn consumed. But here again, the money price of yarn, according to our proposition, would tend to adjust itself to the spinner's money cost. This again consists, in part, of interest and wages of spinners, and in part, of the money expended upon consumption and durable goods, say the wool consumed. It is manifest that the analysis may be continued in this way until finally the money cost of every single stage of production is resolved into interest and wages. In so far as the price of the finished product or of the intermediate products (cloth, yarn, wool, etc.), actually conform to their money cost of production, they cannot fail, in the end, to coincide with the total sum of the interest and wages expended in their production. Or what is the same thing, they will agree with the total outlay of the original elements of production-labor and abstinence-rated according to their value or price. The primary outlay in production, especially the labor, to whose consideration we will, for the sake of brevity, confine ourselves, can, as we know, be measured by other