In no case can the cost of production have any direct influence upon the price of a commodity, if the commodity has been produced and the cost has been incurred; but in every case in which the cost of production has not been incurred, the manufacturer makes an estimate of the alternatives open to him before determining whether, and in what quantities, the commodity shall be produced; and the stream of supply thus determined on fixes the marginal value and the price. The only sense, then, in which cost of production can affect the value of one thing is the sense in which it is itself the value of another thing. Thus what has been variously termed utility, ophelemity, or desiredness, is the sole and ultimate determinant of all exchange values.
Monday, February 14, 2011
For anyone who thinks that costs do not govern value and price, hear Philip Wicksteed, the British "Austrian," thoroughgoing subjectivist, and critic of Alfred Marshall (not to mention admired by Mises). From The Common Sense of Political Economy: