Friday, February 11, 2011

Price determines costs

Factor payments are the result of sales to consumers and do not determine the latter in advance. Costs of production, then, are at the mercy of final price, and not the other way around.
... says Rothbard in Man, Economy and State (chapter 5). This important economic fact is mostly misunderstood by economists and the public in general. Most people think that prices are determined by costs of production (and I do admit, that this sounds logical). This is not true. Rothbard explains that in detail. So be aware!

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