Economics Dictionary of ArgumentsHome
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| Costs: In economics, costs represent the resources or sacrifices incurred to produce goods or services. These include explicit costs (direct expenses like wages, materials) and implicit costs (opportunity costs, such as foregone alternatives). Costs influence production decisions, pricing strategies, and overall economic efficiency, essential in assessing profitability and resource allocation._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments. | |||
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Murray N. Rothbard on Costs - Dictionary of Arguments
Rothbard III 588 Costs/production/business/Rothbard: Looked at from the point ofview of an individual entrepreneur, payments to factors are money costs. It is clear that we cannot simply rest on the old classical law that prices of products tend, in the long run, to be equal to their costs of production. Costs are not fixed by some Invisible Hand, but are determined precisely by the total force of entrepreneurial demand for factors of production. Basically, as Böhm-Bawerk and the Austrians pointed out, costs conform to prices, and not Vice versa. Confusion may arise because, looked at from the point of view of the individual firm rather than of the economist, it appears as if costs (at least in the sense of the prices of factors) are somehow given, and beyond one's control.(1) >Production factors/Rothbard, >Austrian School, >Böhm-Bawerk. If a firm can command a selling price that will more than cover its costs, it remains in business; ifnot, it will have to leave. The illusion of externally determined costs is prevalent because, (…) most factors can be employed in a wide variety of firms, if not industries. Rothbard III 589 If we take the broader view of the economist, however, the various "costs," i.e., prices of factors, determined by their various DMVPs (discounted marginal value products) in alternative uses, are ultimately determined solely by consumers' demand for all uses. It must not be forgotten, furthermore, that changes in demand and selling price will change the prices and incomes of specializedfactors in the same direction. The "cost curves" so fashionable in current economics assume fixed factor prices, thereby ignoring their variability, even for the single firm. >Factor market/Rothbard, >Discounting/Rothbard, >Marginal product/Rothbard, >Production costs/Rothbard, >Costs/Stigler. Rothbard III 490 Rothbard: The interesting phases, then, are the immediate run and the long run. Yet cost-curve analysis deals almost exclusively with a hybrid intermediate phase known as the "short run." In this short run, "costs" are sharply divided into two categories: fixed (which must be incurred regardless of the amount produced) and variable (which vary with output). This whole construction is a highly artificial one. RothbardVsFixed costs: There is no actual "fixity" of costs. Any alleged fixity depends purely on the length oftime involved. In fact, suppose that production is zero. Cost curve: The "cost-curve theorists" would have us believe that even at zero output there are fixed costs that must be incurred: rent of land, payment of management, etc. However, it is Clear that if data are frozen - as they should be in such an analysis - and the entrepreneurs expect a situation of zero output to continue indefinitely, these "fixed" costs would become "variable" and disappear very quickly. The rent contract for land would be terminated, and management fired, as the firm closed its doors. There are no "fixed" costs; rather there are different degrees of variability for different productive factors. >Production factors/Rothbard, >Production costs/Rothbard. Some factors are best used in a certain quantity over a certain range of output, while others yield best results over other ranges of output. The result is not a dichotomy into "fixed" and "variable" costs, but a condition of many degrees of variability for the various factors.(1) Rothbard III 591 There are two elements that determine the behavior of average costs, i.e., total costs per unit output. (a) There are "physical costs" - the amounts of factors that must be purchased in order to obtain a certain physical quantity of output. These are the obverse of "physical productivity" -the amounts of the physical product that can be produced with various amounts of factors. This is a technological problem. Here the question is not marginal productivity, where one factor is varied while others remain constant in quantity. Here we concentrate on the scale of output when all factors are permitted to vary. Where all factors and the product are completely divisible, a proportionate increase in the quantities of all the factors must lead to an equally proportionate increase in physical output.1341 This may be called the law of "constant returns to scale." >Return to scale/Rothbard. (b) The second determinant of average costs is factor prices. Rothbard III 599 Cost curve/Rothbard: (…) the marginal cost of further production (roughly the opportunity cost) becomes ever Iower as the product moves toward final output and sale. This is the simple meaning of the usual cost-curve morass. 1. Robbins points out that the length of a period of productive activity depends upon the expectations of entrepreneurs concerning the permanence of a change and the technical obstacles to a change. Robbins, “Remarks upon Certain Aspects of the Theory of Costs,” pp. 17–18._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977 |
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