Dictionary of Arguments


Philosophical and Scientific Issues in Dispute
 
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Entry
Reference
Marginal costs Sraffa Kurz I 79
Marginal costs/Sraffa/Kurz: (…) Sraffa’s emphasis that in an economic system in which production continues unchanged day after day the marginal product of a factor or the marginal cost of a commodity is not ‘there to be found’ may be interpreted as a warning for his readers: marginal products and marginal costs are theoretical objects and not observable objects. In fact, even in a stationary state the observer could calculate the marginal product of a factor or the marginal
Kurz I 80
cost of a commodity provided that infinitesimal changes were assumed (counterfactually); but obviously no observer could experience them. Things are different with respect to what Wicksteed called ‘spurious margins’: ‘The most familiar case is that of the product of the “marginal land” in agriculture, when lands of different qualities are cultivated side by side’ (Sraffa, 1960: v)(1). In this case two different objects are experienced by the observer and the difference between the two objects defines the increments implicit in the concept of margin. This concept of margin was actually introduced by classical economists. Sraffa reminds us that ‘P.H. Wicksteed, the purist of marginal theory … condemns such a use of the term “marginal” as a source of “dire confusion’” (ibid.).
1. Sraffa, P. (1960). Production of Commodities by Means of Commodities. Prelude to a Critique of Economic Theory, Cambridge: Cambridge University Press.

Salvadori, Neri and Signorino, Rodolfo. 2015. „Piero Sraffa: economic reality, the economist and economic theory. An interpretation.“ In: Kurz, Heinz; Salvadori, Neri 2015. Revisiting Classical Economics: Studies in Long-Period Analysis (Routledge Studies in the History of Economics). London, UK: Routledge.

Sraffa I
Piero Sraffa
Production of Commodities by Means of Commodities. Prelude to a Critique of Economic Theory (Cambridge: Cambridge University Press). Cambridge 1960


Kurz I
Heinz D. Kurz
Neri Salvadori
Revisiting Classical Economics: Studies in Long-Period Analysis (Routledge Studies in the History of Economics). Routledge. London 2015
Marginal costs Ricardo Rothbard II 84
Marginal costs/Ricardo: (…) as population inexorably increases, and poorer and poorer lands are used, all the differentials keep increasing. Thus, say that, at one point of time, corn lands (which sums up all land) range in productivity from the highest, Land A, through a spectrum down to Land J, which, being marginal, earns a zero rent. But now population increases and farmers have to cultivate more and poorer lands, say K, L, and M. M now becomes the zero-rent land, and Land J now earns a positive rent, equal to the differential between its productivity and that of M. And all the previous infra-marginal lands have their differential rents raised as well. It becomes ineluctably true, therefore, that over time, as population increases, rents, and the proportion of income going to rent, increase as well. Yet, though rent keeps increasing, at the margin it always remains zero, and, as Ricardo put it in a crucial part of his theory, being zero rent does not enter into cost. Put another way: quantity of labour cost, being allegedly homogeneous, is uniform for each product, and profits, being uniform and fairly small throughout the economy, form a part of cost that can be basically neglected. Since the price of every product is uniform, this means that the quantity of labour cost on the highest-cost, or zero-rent, land, uniquely determines the price of corn and of every other agricultural product. Rent, being infra-marginal in Ricardo's assumptions, cannot enter into cost. >Economic rent/Ricardo, >Wages/Ricardo, >Economy/Ricardo.
And, paradoxically, while rent keeps rising over time, it remains zero at the margin, and therefore without any impact on costs.
RothbardVsRicardo: There are many flaws in this doctrine.
1) (…) even the poorest land in cultivation never earns a zero rent, just as the least productive piece of machinery or worker never earns a zero price or wage. It does not benefit any resource owner to keep his resource or factor in production unless it earns a positive rent. The marginal land, or other resource, will indeed earn less of a rent than more productive factors, but even the marginal land will always earn some positive rent, however small.
2) Second, apart from the zero-rent problem, it is simply wrong to think that rent, or any other factor return, is caused by differentials. Each piece of land, or unit of any factor, earns whatever it produces; differentials are simple arithmetic subtractions between two lands, or other factors, each of which
Rothbard II 85
earns a positive rent of its own. The assumption of zero rent at the margin allows Ricardo to obscure the fact that every piece of land earns a productive rent, and allows him to slip into the differential as cause. >Causality/Philosophical theories.
3) (…) in discussing the rise in cost of producing corn, Ricardo reverses cause and effect. Ricardo states that increasing population ‘obliges’ farmers to work land of inferior quality and then causes a rise in its price. But as any utility theory analyst would realize, the causal chain is precisely the reverse: when the demand for corn increases, its price would rise, and the higher price would lead farmers to grow corn on higher-cost land. But this realization, of course, eliminates the Ricardian theory of value and with it the entire Ricardian system.
4) (…) as numerous critics have pointed out, it is certainly not true historically that people always start using the highest-quality land and then sink gradually and inevitably down to more and more inferior land.
>Ricardo/Neoclassical Economics.

EconRic I
David Ricardo
On the principles of political economy and taxation Indianapolis 2004


Rothbard II
Murray N. Rothbard
Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995

Rothbard III
Murray N. Rothbard
Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009

Rothbard IV
Murray N. Rothbard
The Essential von Mises Auburn, Alabama 1988

Rothbard V
Murray N. Rothbard
Power and Market: Government and the Economy Kansas City 1977
Marginal costs Wittman Parisi I 433
Marginal costs/liability/Wittman: In accident law, marginal cost civil liability is rare, but in contract law, it is the rule. There are several reasons for these two areas of law having different methods of determining liability: (1) In contract cases, the second party in the sequence (who can mitigate damages) always knows who created the initial wrong—the breacher of the contract. The same does not hold for accident cases. If a car swerved suddenly to avoid hitting another car driving in the other direction but on the wrong side of the road, it could be very difficult to discover afterward who the reckless driver was.
(2) When a breach of contract occurs, cost-effective preventive action by the person who has the last clear chance may be very costly; for example, repacking the leaky pickle barrels. Therefore, it pays for the plaintiffs in breach of contract cases to sue even when there is “no damage” because sufficient marginal costs are involved in preventive action to make it worthwhile for the plaintiff to collect for these costs (which are also known as damages in the legal literature). In contrast, the amount of liability that any one driver could collect for swerving (and thereby avoiding an accident) would not be enough to compensate for the transaction cost of litigation.
(3) It is much easier to determine sequence (who was first and who was last) in breach of contract than in accident cases. For all these reasons, we would expect the sequence of events to be much more important for breach of contract—where mitigation of damages is the rule—than for accidents where last clear chance is rarely applied. The differences in the two areas of civil law are thus due to the different costs of information and the benefits of litigation.
>Compensation/Wittman, >Liability/Wittman.
Parisi I 434
Rescue: If a person can be rescued at low cost, it is clearly economically efficient to do so. The Continental version of the Good Samaritan rule encourages low-cost rescues in two ways. First, the rescuer is compensated for the small costs of rescue; second, if the potential rescuer’s costs are somewhat higher than the average so that the reward does not fully cover all of the rescuer’s costs, then the threat of being liable for non-rescue will motivate the person to rescue. The rule also provides the appropriate incentives for those who might need rescue. By charging for the average cost of the rescue, the rescuee takes the appropriate level of care. A higher price for rescue would result in the potential rescuee being overly cautious and needing too few rescues. For example, consider the possibility of a person deciding to swim at a beach.
Parisi I 435
The cost of rescue is not always trivial, and because of that, people are sometimes prevented from undertaking certain risky actions in the first place.

Donald Wittman. Ex ante vs. ex post. In: Parisi, Francesco (ed) (2017). The Oxford Handbook of Law and Economics. Vol 1: Methodology and Concepts. NY: Oxford University.


Parisi I
Francesco Parisi (Ed)
The Oxford Handbook of Law and Economics: Volume 1: Methodology and Concepts New York 2017
Marginal costs Rothbard Rothbard III 340
Marginal costs/Rothbard: (…) the cost, or "marginal" cost, of any decision is the next highest utility that must be forgone because of the decision. When a means M must be distributed among ends E1, E2, and E3, with E1 ranked highest on the individual's value scale, the individual attempts to allocate the means so as to attain his most highly valued ends and to forgo those ranked Iower, although he will attain as many of his ends as he can with the means available. If he allocates his means to EI1and E2, and must forgo E3, E3 is the marginal cost ofhis decision. Ifhe errs in his decision, and arrives at E3 instead of E2, then ex post - in retrospect - he is seen to have suffered a loss compared to the course he could have taken.

Rothbard II
Murray N. Rothbard
Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995

Rothbard III
Murray N. Rothbard
Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009

Rothbard IV
Murray N. Rothbard
The Essential von Mises Auburn, Alabama 1988

Rothbard V
Murray N. Rothbard
Power and Market: Government and the Economy Kansas City 1977



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