70 THE GENERAL THEORY OF EMPLOYMENT BK. II

entrepreneur has to exercise a choice between using up hisequipment now and preserving it to be used later on. It is theexpected sacrifice of future benefit involved in present use whichdetermines the amount of the user cost, and it is the marginalamount of this sacrifice which, together with the marginal factorcost and the expectation of the marginal proceeds, determineshis scale of production. How, then, is the user cost of an actof production calculated by the entrepreneur?

We have defined the user cost as the reduction in the valueof the equipment due to using it as compared with not using it,after allowing for the cost of the maintenance and improvementswhich it would be worth while to undertake and for purchasesfrom other entrepreneurs. It must be arrived at, therefore, bycalculating the discounted value of the additional prospectiveyield which would be obtained at some later date if it were notused now. Now this must be at least equal to the present valueof the opportunity to postpone replacement which will resultfrom laying up the equipment; and it may be more.1

If there is no surplus or redundant stock, so that more unitsof similar equipment are being newly produced every year eitheras an addition or in replacement, it is evident that marginal usercost will be calculable by reference to the amount by which thelife or efficiency of the equipment will be shortened if it is used,and the current replacement cost. If, however, there is re-dundant equipment, then the user cost will also depend on therate of interest and the current (i.e. re-estimated) supplementarycost over the period of time before the redundancy is expected tobe absorbed through wastage, etc. In this way interest cost andcurrent supplementary cost enter indirectly into the calculationof user cost.

The calculation is exhibited in its simplest and most in-telligible form when the factor cost is zero, e.g. in the case of aredundant stock of a raw material such as copper, on the lineswhich I have worked out in my Treatise on Money, vol. ii.chap. 29. Let us take the prospective values of copper at variousfuture dates, a series which will be governed by the rate at whichredundancy is being absorbed and gradually approaches the

user cost may be affected all along the line when the total volume of outputis changed.

1 It will be more when it is expected that a more than normal yield canbe obtained at some later date, which, however, is not expected to last longenough to justify (or give time for) the production of new equipment.To-day’s user cost is equal to the maximum of the discounted values of thepotential expected yields of all the to-morrows.