§10. Costs, or Negative Income

Cost of production of durable agents or capital goods has its influence included in the preceding formulation, since any cost is simply a negative item of income. Future negative items are to be discounted exactly as future positive items. It is to be remembered that at the given point of time when the value is being computed only future costs can enter into the valuation of any good. Edition: current; Page: [16] Past costs have no direct influence on value. Only indirectly do they enter to the extent that they have determined the existing supply of goods and have thus either raised or lowered the value of the services of these goods.

In this indirect way, past costs can determine present values temporarily and until the prices of goods available are brought into conformity with the present costs of production through the operation of supply and demand. For example, the cost of producing woolen cloth declined very sharply after the close of the World War, but the price did not decline for many months because the new cloth made at less expense was not sufficient to meet the demand, hence the price remained above the new costs of production for a time. Again, the cost of making shoes advanced rapidly during the early years of the twentieth century, but the price of shoes did not advance pari passu with increased costs, because the supply of more cheaply made shoes was still large and for a time controlled the market price. In the same indirect way, many other influences affect the value of the services of any good, especially any alternative to those services. But none of these considerations affects the principle that the value of the good itself is the discounted value of the value (however determined) of its future services.