Second: as regards the direct action of costs. Under certain circumstances it is economically permissible to produce things whose use value exceeds their cost value, while they must, none the less, be estimated at their cost value. This direct action is the most striking of the two. Assume that the amount of costs necessary for an article has the value of 6, and that the first article produced has a use value of 10, while the use value of a second article would amount to only 1 (compare Book I. chap. iv and Book III. chap. viii): the production must be confined to one article. How is it to be valued? This will depend upon circumstances. In a moment of extreme danger a weapon will be estimated according to its use value. But suppose a man to be leisurely preparing and equipping himself for an adventuresome journey, he will not think of valuing the best of weapons more highly than the materials and labour available for the purpose of producing and reproducing them. The loss of the weapon can always be made good -- supposing one has the necessary leisure and means for its reproduction -- by a sacrifice in costs, the amount of which is certainly less than the importance possessed by the weapon itself in a moment of urgent need. A good having a use value equal to 10, and a cost value equal to 6, must be estimated at 6, so long as its reproduction is possible and the satisfaction of want is not prejudiced by the delay.
The same argument as leads to our valuing at marginal utility any single item of a stock which happens to be actually devoted to satisfying a want of higher grade, leads to our valuing at cost value and no more, a product whose specific use value exceeds its cost value, supposing we have also in our possession the means of producing and reproducing it at the proper moment.
For, as, in the one case, the marginal use is really the only use threatened, so, in the other, the cost value is the only value threatened. Here is a new application of the marginal law.
Cases of the kind just described attract particular notice on account of the fact that the influence of costs upon the value of products is independent of amounts produced. If the cost value, in the example just given, rise from 6 to 9, or fall to 2, one product only will be produced, and its value likewise will follow the changes of the cost value, and rise to 9 or fall to 2, without the amounts produced being changed. Ricardo, with the keenness of observation peculiar to him, pointed to the consideration of those instances, in which the value of the product adjusts itself to the cost value without any change of amounts, as a very important one from the point of theory. As a matter of fact it is so, although Ricardo was wrong in the place he gave it. He wished to prove from it that costs are fundamentally an independent source of value, whereas, as a matter of fact, it proves simply that costs may, in certain isolated cases, directly determine the amount of the value of products. It is, however, chiefly decisive in that it gives us an insight into the connections of the process of valuation such as could scarcely be obtained otherwise. It gives us, indeed, the most unequivocal and umdeniable application of the marginal law that it is possible to find anywhere.
Moreover, even in this case, the fact that costs have been expended is of no importance as regards the value of products.
The decisive circumstance is, that costs could again be expended, and secure a higher utility at a less sacrifice of utility.(1*)NOTES:
1. The foundation of the law of costs given in the text appears to be applicable only to natural value, and not to exchange value or price. But it is also applicable to them. The proximate explanation of the validity of the law of costs, in the case of price, is that producers are not willing to sell under cost, and -- where there is free competition -- are not able to sell over cost. But why is it that they will not sell in the former case, and why does competition make it impossible to sell in the latter? In the last resort it is because every one applies for himself, as well as he is able, the natural laws of valuation, and those laws bring him to that amount of product, or that valuation of what is produced, from which the law of costs results. Competition -- i.e. the efforts of others who apply the same natural laws -- then forces him to give expression, in the price which he asks from the consumers, to the valuation which he has made for himself. The actual position of price depends, therefore, essentially upon the actual position of competition, particularly on how far the efforts of competition are limited by the "hindrances to equalisation." These "hindrances" are peculiarly strong in international trade, in which, accordingly, the law of costs holds only very slightly.
