Chapter 38 The ninth chapter is the relationship between marginal cost and value.General principles (continued)

The first section explains the various reasons for the value problem by means of rent and tax transfer. The phenomena of ground-rent are so complex, and the practical problems connected with them, which have given rise to disputes over some of the side questions of the question of value, that it is necessary to supplement our previous illustrations with land.We can repeat the argument with imaginary commodities, chosen so as to have at each stage of the question their distinctive features, without arousing the reproach that they do not exist in the actual relations of landlord and tenant. But before we get to that point, we can sideline the problem of value by the fallacy of the tax on rent.For most of economic science is indeed concerned with the generalization throughout society of those economic changes which chiefly affect a particular branch of production or consumption; The discussion of passing on from producers to final consumers, or "backwards" in the opposite direction, is properly accounted for.And this is especially true of problems of the kind under discussion.

There is a general principle that if a tax is imposed on anything that some people use to produce goods or services that are sold to other people.Such a tax, then, tends to curtail production.This would shift most of the tax burden forward to consumers and a small part backward to those who supply the group of producers to produce the necessities.Likewise, an excise tax on any kind of thing is passed back to its producers in varying degrees. For instance, the unforeseen and heavy taxation upon the printing trade would deal a severe blow to those engaged in it, for if they tried to raise their prices very much, the demand would fall sharply.But the various classes engaged in the industry have been hit differently.As printing presses and compositors were not easily employed outside the printing trade, the price of printing presses and the wages of compositors fell for a time very low.Plants and power plants, on the contrary, as well as handymen, engineers, and employees, will not wait to bring their numbers into proportion to reduced demand through the slow process of natural destruction; some of which will soon find their way in other trades. , and the part borne by those who remain in the industry in the long run is very little.Moreover, a large part of the tax must be borne by the auxiliary industries, such as the paper-making and mold-making industries, because the market for their products has been reduced.Authors and publishers also lose something; because they are either forced to raise book prices, thereby reducing sales, or let costs eat up a large portion of their total income.Finally, the booksellers' total sales are down, so they also suffer some losses.

It has been supposed above that the tax is widely distributed, and concerns the various districts into which the said printing industry is liable to immigrate.But if it were only a local tax, the compositors would have to be moved out of the tax's reach; while the printers would pay more, not less, than those whose funds were more earmarked, but more easily mobilized. .If this local tax is not compensated by any consequence of attractive population trends, part of the burden will fall on the shoulders of local bakers and grocers, etc., who will sell less. Suppose next that the tax levied is that of the printing press, and not of printed matter.In this case, if the printers have no half-worn machinery which they are willing to destroy or throw away, the tax will not strike down marginal production.It doesn't immediately affect the print run and thus its price.It would only cut off part of the remuneration that the press owner was about to receive, and reduce the quasi-rent of the printing press.But it does not affect the pure rate of profit which was formerly necessary to induce the investment of circulating capital in printing presses.Hence, when the printing presses are worn out, the tax increases the marginal cost of production, that is to say, the expense which leaves the producer hesitant to choose freely.Consequently, the supply of printing decreases and its price rises.And the introduction of new printing presses will go only to that margin where, in the judgment of the average printer, they will furnish a normal profit for that outlay, in addition to paying the rent and tax.

When this stage has been reached, the burden of the tax on printing presses is distributed in much the same way as that of the tax on printing, except that the temptation to extract a great deal of work from each printing press is much greater.For example, more printing presses can run double shifts, although night shifts incur special charges. We now apply these principles of tax shifting to our main illustration. Illustrative explanation of the relationship between rent and quasi-rent and value discussed in the previous section of the second section. Let us suppose that thousands of large meteorites, harder than diamonds, have fallen in one place, so that they are picked up at once, and then there are no more.Cutting all kinds of things, these meteorites are bound to revolutionize many branches of industry; and the owner of the meteorites has a special advantage in production, which will provide a huge producer surplus.This surplus is determined entirely by the urgency and magnitude of the need for their services on the one hand, and by the number of meteorites on the other.It is not affected by the cost of obtaining more supplies, since no more pieces can be produced at any price.Production costs can indeed affect their value indirectly, but that is the cost of tools made of hard steel and other materials, and the supply of these tools can increase as demand increases.If any piece of meteorite would be used by a clever producer to perform the same work that could be done with such a tool, the value of that piece of meteorite would not be much greater than the cost of producing tools as effective for these minor uses ( minus depreciation).

Because meteorites are so hard that they are not affected by friction, they may be used throughout the working day.If their service is valuable, it is worthwhile to work extra hours, or even double or triple shifts, in order to maximize their service.But the more they are used, the less are their net rewards for each additional service; thus explaining the law that not only the land, but also all other means of production, , there will be diminishing returns. The total supply of meteorites is fixed.But of course any given manufacturer can buy almost as much as it wants.In the long run he provides interest (or profit, if his own work is included) on other expenditures on meteorites, just as if he had purchased a machine, the supply of which could be infinitely increased, Therefore, its price almost coincides with its production cost.

But when he has once purchased meteorites, the changes in the demand of the processes of production, or of the things produced by means of them, may make them afford double his expected income, or only one-half.In the latter case it is analogous to that which would be earned from a machine which, without the latest improvements, would earn only one-half as much as a new machine of equal cost. The value of meteorites and machines is likewise a capital reduction of the income they can earn, which in turn is determined by the pure value of the services they render.The earning power, and hence the respective value, does not depend on its cost of production, but on the general supply and demand of its products.But in the case of machines, that supply is constrained by the cost of supplying new machines of equal efficiency, whereas in the case of meteorites there is no such constraint, provided the existing meteorites are used for anything else Words that can't do the job.

Try another way to illustrate the above argument.Because whoever buys meteorites buys them from other producers, and his purchase does not substantially affect the general supply and demand relationship of the services provided by meteorites.It therefore does not affect the price of the meteorite; but this price is still a capital reduction of the value of the service rendered by the meteorite in those uses where the need is least urgent.The assertion that buyers expect normal interest on the price of capital reduction representing the value of services is tantamount to asserting that the value of services rendered by meteorites is determined by the value of those services, which is circular.

Next let us suppose that these meteorites were not all found at once, but were scattered on the ground of public lands, and that a vigorous search might find a piece here or there.The search for meteorites will then go only to that point (or marginal) at which the possible benefits of finding them just cover in the long run the outlay of labor and capital employed; in the long run the normal value of the meteorite is That value which keeps supply and demand in balance, and the quantity of meteorites found each year is precisely that quantity over a long period of time for which the normal demand price equals the normal supply price.

Finally, let us treat the case of meteorites on a par with that of light machines and other equipment commonly used in the process industries, by assuming that meteorites are fragile and will wear out quickly; An inexhaustible source from which additional supplies can be quickly and surely drawn at almost constant cost.In this case the value of the meteorite is always approximately equal to this cost; Changes in demand have very little impact on their prices, because a slight price change can quickly cause a huge change in the stock of meteorites on the market.In this case the income (minus depreciation) from a meteorite will always be very close to the interest on its production cost.

The third section continues. Many of the above assumptions are constantly drawn from one extreme to the other, at one extreme the revenue from meteorites is strictly ground rent, while at the other extreme it is rather the same as that of free or circulating capital. Interest is included in one category.In the first extreme case, the meteorite cannot be worn out or destroyed, and its number is also constant.They have, of course, a tendency to be apportioned to various uses in which they are employed in such a way that increasing the supply of meteorites to suit the needs of a particular use would at least have the same Other uses of value are not acceptable.It can be seen that the application margins of several uses are determined by the relationship between the fixed quantity of meteorites and the total demand for them in different uses.Once these margins are so determined, the price to be paid for their use is expressed by the value of the services they render at any one of them.

A flat tax imposed on meteorites and collected from users would reduce the net service of meteorites to various uses by an amount equal to the amount of the tax.This tax will not affect the distribution of meteorites among several uses; perhaps after some delay due to readjusted frictional resistance, it will all fall on the shoulders of the owners of the meteorites. At the other extreme of our hypothetical chain, meteorites are destroyed so quickly and reproduced at almost constant costs that variations in the urgency and quantity of the various uses that meteorites can undertake will Rapid fluctuations in the number of meteorites available, therefore, those services can never offer a normal rate of interest much higher or lower than the monetary cost of acquiring additional meteorites.In this case, when an entrepreneur calculates the cost of any order for which the meteorite will be used, he can add interest (or profit, if his own work is included) to the period during which the meteorite will be used (and worn out) Included as part of the principal or direct costs of the order.In this case the tax on meteorites would fall entirely on the man, who even accepted an order for the production of meteorites shortly after the introduction of the tax. Assuming an intermediate stage in the life of meteorites and the rate at which new ones are supplied; we find that there may be a temporal relationship between the fees which borrowers of meteorites must pay and the income which owners of meteorites can derive from them at any time, and their cost-interest (or profit) difference.For variations in the urgency and quantity of the various uses which meteorites can undertake would greatly increase or decrease the value of the service they render at their marginal use, even without great indifference in the difficulties of producing them. Variety.If this rise or fall, due to changes in demand, rather than to changes in the cost of meteorites, is likely to be large during any discussion of any particular business or any particular question of value, then, for that discussion, the income provided by meteorites It is not so much the interest that approximates the cost of meteorite production, but rather the approximation to ground rent.The tax imposed on meteorites in this case would tend to reduce the rent paid by users, and thus the incentive to invest in acquiring additional supplies.It thus reduces the supply, and forces those who need meteorites to gradually increase their rent to a point at which the rent and the cost of producing the meteorite exactly balance it out.But the time required for this adjustment may be very long.During this period, most of the tax falls on the shoulders of the meteorite owner. If the life of meteorites is long in comparison with the production process which we have described using them, there may be more stocks of meteorites than is required for the kinds of work for which they are specially adapted.Some of them are almost idle, and the owner of these meteorites does not include interest in the value of the meteorites in calculating the marginal price at which he happens to wish to produce them.That is, some costs are classified as direct costs for contracts or other events lasting a long period of time, but as supplementary costs for a specific event of only a short period of time, and such costs are in low business conditions. to be considered. Of course, in the long run it is as important that the price charged should cover supplementary costs as it should cover direct costs.An industry is bound to go bankrupt in the long run by being unable even to afford a cheap rate of interest on the capital invested in engines, as by being unable to replace the price of coal and raw materials consumed daily.Just as the same man must stop working because he cannot get food, or because he is in chains.But a man can go on working for a day without food, whereas if he is put in chains, he cannot work at once.In the same way an industry may, and often does, be quite active throughout a period of a year or more, though during that period little is earned but principal costs, and capital equipment has to be "used for nothing".But if the price falls so far that it cannot pay for raw materials, wages, coal, lighting, etc., which were purchased in cash during the year, production must immediately come to a standstill. This is the fundamental difference between those incomes provided by the factors of production that are considered ground rent or quasi-rent, and those incomes (less depreciation and maintenance costs) that are considered interest (or profit) on current investments.Although this difference is a fundamental difference, it is only a difference of degree.There is a tendency in biology to demonstrate that the kingdoms of animals and plants have a common origin.Still, there is a fundamental difference between mammals and trees; and, in a narrower sense, the difference between an oak and an apple tree is a fundamental difference; The difference between them is also a fundamental difference, although they all belong to the Rosaceae.Thus, our central theory is that interest on free capital and quasi-rent on old investment gradually merge, even if ground rent is not a thing in itself, but a principal species of a large class. The fourth quarter continues. In addition, no matter in the spiritual world or the material world, nature has never separated the pure factor from other factors, and pure rent in the strict sense is extremely rare.Nearly all land revenues contain some important component to some extent, arising from the labor invested in building houses, sheds, and drainage.But economists have learned to recognize the various properties of those mixtures to which such terms as rent, profit, and wages are commonly referred.They know that in this mixture which is commonly called wages there is an element of real ground rent, that in what is commonly called ground rent there is real remuneration for labour, etc.In short, they understood to take as their example the chemist, who inquired into the nature of the various elements, and thus dealt with the commercially common oxygen and soda, though they contained impurities of other elements. They know that almost all land actually used contains an element of capital; and that part of the value which arises from the labor which men have thrown into the land for its production, and that which does not, needs to be argued separately; The results of these arguments must be combined in any particular case where a revenue of what is commonly called "ground rent" is not in fact all ground rent in a narrower sense.The way the argument is synthesized depends on the nature of the problem.Sometimes a mere mechanical "synthesis of forces" suffices; more often a chemical-like interaction of forces has to be taken into account; The concept of growth on the Internet is bound to pay attention. The fifth section is rare land rent and differential land rent. Finally, briefly talk about the difference between "rare land rent" and "differential land rent". In a sense, all land rents are rare land rents, and all land rents are also differential land rents.In some cases, however, it is convenient to calculate the rent of a particular factor of production by comparing the returns afforded by an inferior (perhaps marginal) factor equally employed with appropriate instruments.In other cases, however, it is best to examine directly the basic relation of demand to the scarcity or abundance of the means required to produce those commodities with that factor. For example, assume that existing meteorites are all equally hard and equally indestructible; Suppose these meteorites were in the hands of someone else.Suppose further that he decides not to use monopoly power to restrict production so as to artificially raise the price of its services, but to use each meteorite to the extent that it can be used profitably (that is, to such a large margin of intensity that so that the product can only be sold at a price which is just sufficient for its expenses and profit, and the use of meteorites does not provide any surplus).Thus, the price of the services rendered by meteorites must be determined by the relationship between the natural scarcity of the quantity they serve and the demand for those services; Difference.Therefore, it is generally regarded as rare ground rent.But on the contrary, it may be regarded as the differential difference in the total value of the meteorites' pure services over the total value that would be achieved if all their uses were as unprofitable as their marginal uses.The above argument is also fully applicable if the meteorites are owned by different producers who, through competition with each other, are compelled to use each meteorite to the point where reuse is no longer profitable. The reason why the above example is chosen in this way is to illustrate the fact that the calculation of land rent by the methods of "gradual difference" and "rareness" does not depend on the existence of inferior production factors: because the marginal use of superior meteorites and the The use of inferior meteorites on the margins, which are not at all worthwhile, can equally clearly be compared in favor of meteorites for their various more favorable uses. From this it can be seen that the view that the existence of inferior land or other factors of production tends to raise the rent of superior factors is not only wrong, but also the opposite of the truth.For if the inferior land is flooded and fails to produce anything at all, the other lands must be more intensively cultivated; the price of the produce, therefore, is higher, and the rent generally increased, than when this land affords a small produce.