APPENDIX ON USER COST

I

User cost has, I think, an importance for the classical theory ofvalue which has been overlooked. There is more to be saidabout it than would be relevant or appropriate in this place.But, as a digression, we will examine it somewhat further inthis appendix.

An entrepreneur’s user cost is by definition equal toA1 + (G´ - B´) - G,

where A1 is the amount of our entrepreneur’s purchases fromother entrepreneurs, G the actual value of his capital equip-ment at the end of the period, and G´ the value it might havehad at the end of the period if he had refrained from usingit and had spent the optimum sum B´ on its maintenanceand improvement. Now G - (G´ - B´), namely the incrementin the value of the entrepreneur’s equipment beyond the netvalue which he has inherited from the previous period, representsthe entrepreneur’s current investment in his equipment and canbe written I. Thus U, the user cost of his sales-turnover A,is equal to A1 - I where A1 is what he has bought from otherentrepreneurs and I is what he has currently invested in his ownequipment. A little reflection will show that all this is no morethan common sense. Some part of his outgoings to other entre-preneurs is balanced by the value of his current investment inhis own equipment, and the rest represents the sacrifice whichthe output he has sold must have cost him over and above thetotal sum which he has paid out to the factors of production. Ifthe reader tries to express the substance of this otherwise, he willfind that its advantage lies in its avoidance of insoluble (andunnecessary) accounting problems. There is, I think, no otherway of analysing the current proceeds of production unambigu-ously. If industry is completely integrated or if the entre-preneur has bought nothing from outside, so that A1 = O, the

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