Conditions Under Which the Law of Cost Obtains It is unnecessary to say that products only come under the law of costs. The products which principally come under this law are those which are produced frequently, regularly, and in large amounts, and, in particular, those in the production of which cost-goods are exclusively employed. Products whose manufacture is strictly and narrowly limited by confessedly monopoly goods do not experience the influence of costs at all. All alterations in costs in such cases go, not to products, but to the monopoly factors of production; every dilution of costs raises, and every increase lowers, the value of these factors.(1*)Such products too as are to be re-employed in production --i.e. all produced concrete forms of capital, or "capital goods,"as we may call them for convenience sake -- come under the law of costs. Thus the valuation of capital becomes an exceedingly complicated matter. One has always to combine two things; -- the return to the capital and its costs. Both amounts stand in mutual relation, and tend, so far as possible, towards equality. The greater the value of the return, the greater the costs that may be expended in producing it; and the greater will be the expenditure of costs, so far as is practicable and necessary: the smaller the requisite expenditure of costs, the smaller will finally be the value of the return, whether this result from the fact that production finally is correspondingly extended, or from the fact that the valuation of the utility is directly pressed down to the level of the costs. If a machine does very good work, that is a cause for valuing it highly; but if it can be cheaply produced, the machine itself, and, finally, its products also, will find a low value. The costs of producing capital transmit their effects right down to the fruits of the capital, however remote these may be, so long as they fall within the producer's field of vision, and can be taken into consideration in the estimates of value.
Products which come under the law of costs do not, however, come under it in all circumstances. To do so they must come under consideration as products, i.e. as dependent upon the elements from which they are formed. If they are estimated independently, if they are valued in isolation and for themselves, their own utility alone -- or their marginal utility -- will determine their value, without their productive marginal utility being taken into consideration at all.
