Foundation of the Law of Costs The value of costs determines the value of products in two ways. In general it determines it indirectly, by regulating the supply produced; but, in individual cases, it determines it directly by communicating the amount of its own value without any intermediary.
First: as regards the indirect action of costs. In the value of the costs is expressed the expectation of the greatest possible return from production. In order to fulfil this expectation, the relation between the amounts of all cognate products turned out must be well weighed and proportioned. If too much be produced in any one direction a loss will have to be borne elsewhere, which will be more sensible than the gain resulting from the over-production. If too little be produced in any one direction a similar loss will be felt, which it will be impossible to make good by over-production elsewhere.
Whether too much or too little has been produced is seen exactly in the value. If the value of products -- as it results from the equation between supply and demand -- is less than that of the costs, too much has been produced; the costs which should have brought forth products having higher value have brought forth only goods having less value. Where the value of the product exceeds that of the costs, too little has been produced -- with one exception which will be mentioned shortly; -- the costs have not been employed entirely in bringing forth products of the highest value the very anticipation of which gave the costs their value. If products, then, are to be produced neither over nor under cost they must be produced exactly at cost value, if they are to find the most economically advantageous distribution of production.
If we ask why products thus produced -- neither under nor over costs -- have value, and why they have definite amounts of value, we shall doubtless find that they have themselves alone to thank for it. They create it out of their utility, taking into consideration the amounts produced. The circumstance that costs of a certain value have been expended in ****** them, is of no consequence as regards their value. The cost value does not determine the use value; the use value exists of itself, and sanctions the cost value.
