Note 231 — Chapter XI · THE ULTIMATE RELATION OF COST TO VALUE

A plausible argument could be made to show that we have Ricardo’s authority for maintaining that price-determined rents must not be considered a part of entrepreneur’s cost. For Ricardo said “rent cannot enter in the least degree into price.” But there can be no question that by this he meant that rent cannot enter into cost of production. As was frequent with him, he did not say precisely what he meant. Malthus had said that cost of production includes wages, “profits,” and rent, and that profits and rent, not being paid for labor, prevented the regulation of value by pure labor cost. Ricardo admitted that profits enter into cost but minimized the difficulty thus granted in the labor theory. On the contrary he denied that rent enters into cost. The first paragraph of his chapter on rent shows it to be his purpose in that chapter to justify this denial. Later he stated his contention as being that rent cannot enter into “price,” instead of cost.

Now Ricardo frequently thought of cost as being composed of “labour and profits”! In most places we can make his reasonings clear only by substituting for this hybrid concept a plain concept of entrepreneur’s cost. If Ricardo habitually meant entrepreneur’s cost by the words “cost of production,” then his famous doctrine comes to signify that price-determined rents are not properly a part of entrepreneur’s costs. As far as the present writer can see, our decision in this regard is purely a matter of arbitrary choice between two possible definitions of entrepreneur’s cost. As far as Ricardo is concerned, he had no clear and definite concept or concepts of cost. Into potentiality cost, a price-determined rent assuredly does not enter.