Note 772 — Chapter II · : THE APOGEE AND DECLINE OF THE CLASSICAL SCHOOL. JOHN STUART MILL

“The cost value of a thing means the cost value of the most costly portion of it.” (Principles, Book III, chap. 6, § 1, prop. 7.)

“The extra gains which any producer or dealer obtains through superior talents for business or superior business arrangements are very much of a similar kind. If all his competitors had the same advantages, and used them, the benefit would be transferred to their customers through the diminished value of the article: he only retains it for himself because he is able to bring his commodity to market at a lower cost while its value is determined by a higher.” (Ibid., Book III, chap. 5, § 4.)

Senior had already emphasised one important difference between agricultural and industrial production, namely that whilst the law of diminishing returns operates in the former case, the law of increasing returns is operative in the second. In other words, the cost of production diminishes as the quantity produced increases. The result is, as Mill points out elsewhere, that the industrial employer is anxious to reduce the sale price in order to produce more and to recoup himself for a reduction in price by a reduced cost of production.