Marginal costs in relation to values. General principles, continued

Book 5, Chapter 9

§1. The relative contributions of various inputs to intermediate and then final goods is hard to calculate. Thus, “unbalanced” taxes on various inputs might unbalance their mix and flow. Local taxes will fall on immobile inputs if mobile inputs can flee. Taxes on capital goods will not affect the marginal price of goods until those goods must be replaced. That step will be delayed in proportion to the tax, delaying implementation of innovations.

§§2-3. The price of an input depends on how easily it can be produced as well as the price of substitute and complementary inputs. If the input is hard to replace or displace, then it will attract a “critical” (higher) price, i.e., rents. If the opposite, then its price will be supported by the prices of replacement or substitute inputs. Those prices — given their total depreciation into final goods — will reflect the cost of financing the delay between production and sale.

§4. The relative contributions of inputs will reflect a mix of their separable (“additive, in a mechanical fashion”) and commingled (“multiplicative, as if by chemical transformation”) contributions.

§5. An input of superior quality will attract lower rents when other, inferior inputs are available as substitutes. In Marshall’s time, some claimed that the existence of inferior goods increased rents to superior goods (perhaps by highlighting the gap?), whereas today we’d say their existence reduced prices (or rents) via competition. Marshall was right, there.

This post is part of a series in the Marshall 2020 Project, i.e., an excuse for me to read Alfred Marshall’s Principles of Economics (1890 first edition/1920 eighth edition), which dominated economic thinking until Van Neumann and Morgenstern’s Theory of Games and Economic Behaviour (1944) and Samuelson’s Foundations of Economic Analysis (1946) pivoted economics away from institutional induction and towards mathematical deduction.

Author: David Zetland

I'm a political-economist from California who now lives in Amsterdam.

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