The Online Library of Liberty

A project of Liberty Fund, Inc.

• Preface.
• Lecture I.
• Lecture II.
• Lecture III.
• Lecture IV.
• Lecture V.
• Lecture VI.
• Lecture VII.
• Lecture VIII.
• Lecture IX.
• Lecture X.
• Lecture XI.
• Appendix.
• Note On Page 32.
• Page 37.
• Page 39.
• Page 57.
• Page 65.
• Page 133.
• Page 145.
• Page 149.
• Page 164.
• Page 175.
• Page 183.
• Page 203.
• Page 223.

Page 39.

Colonel Torrens argues, with much ingenuity, that profit does not form part of the cost of production, but that it is the excess of the price of a commodity above its cost of production, and that it is only because it does not form part of the cost of production that it exists at all. The question, however, originates in a verbal dispute, or in a misconception of the meaning of the expression “cost of production.” “Labour” and “profit” are not corresponding terms. To be accurate, we should speak either of labour and capital, or of wages and profits. Adhering to this language, it will be correct to say that commodities are produced by labour and by the employment of capital; and their cost to the consumer, i. e. the price he has to pay for those, is called wages and profit: and those are therefore, relatively to him, the cost of production. In like manner, the cost of production to the capitalist is what the production has cost him; that is to say, the wages he has paid to the labourer, and the use of the capital which he advanced, and which he is deprived of until he is reimbursed by the sale of the commodity. This latter is not profit, indeed, but it is the sacrifice for which profit is required, and by the extent of which the amount of profit is regulated. As profit, therefore, measures this sacrifice, it is not inconvenient, although it may not be accurate, to speak of wages and profits as constituting the cost of production of an article in the possession of the manufacturer. He has paid wages to the labourer, and he has surrendered the profit which he might have derived from any other employment of his capital. Many similar cases will occur to the reader, where, instead of labour, employment of capital, and use of land, we substitute their prices, viz. wages, profits, and rent. As in the case of a small proprietor cultivating his own land with his own capital and labour, he ought to get for the produce an amount equal to the wages he might have earned by his labour, the profit he might have made of his capital, and the rent he could have procured for his land. If it were asked, what does the manufacturer or merchant gain, since he derives a profit only equivalent to the use of the capital he surrenders? I should say that he converts a source of revenue into revenue itself, just as the labourer gains by an employment which converts into a revenue his natural capacity for labour, and as a landlord gains by receiving rent for the productive powers of the soil.