Dan Fabulich, <email@example.com>, writes:
> Consider a case where I'm trying to build widgets, and widgets require
> iron to build, along with $1 of labor to make the widget.
> Now, you can read this in one or two ways. One way of looking at it is to
> say that the cost to make a widget is the cost of the labor plus the cost
> of the capital. If the iron needed for one widget costs $5, then, the
> cost to make a widget is $6. This is what I'd normally think of if I
> tried to specify a production cost. Note that it DOESN'T depend on the
> demand for widgets, but it STILL depends on the cost of *capital*.
I think what Billy is saying is that the iron (which would normally be considered raw material, not capital) costs $5 ultimately because that is the cost of the labor to make that iron. Someone had to mine it, refine it, etc., and the efforts of all of those people are what produce the cost of $5 for the iron.
The one correction I would offer is that there is a profit component to the cost. These widgets are going to be sold, hopefully, for a profit. Ultimately they are worth more to society than the work which went into producing them. The resulting profit gets distributed among the people who created the labor.
Some share of this profit goes to the people who made the iron, and some I can keep. This is where the market factors come into play. Those profits which are retained by the iron makers look to me like costs of production. They reduce my own profits.
If iron is scarce and iron-production is profitable, then iron will be more expensive and iron makers get to keep more of the profits than me. If iron is plentiful and there is little profit in its production, then it will be cheap and I get to keep most of the profits.
In your golden egg example, suppose your goose doesn't lay golden eggs, but some kind of super-advanced computer chips. Suppose it is a nanotech goose that you have invented and no one else has this technology. Now electronics companies want to buy your chips and use them in their devices, which they can sell for a lot of money. However because of your monopoly you can retain most of the profits which those companies receive. To them, the cost of your chips is high, even though the human labor going into producing them is not very great.