72 THE GENERAL THEORY OF EMPLOYMENT BK II

have the notion of user cost implicitly in mind, though they donot formulate it distinctly.

If the supplementary cost is heavy, it follows that the marginaluser cost will be low when there is surplus equipment. Moreover,when there is surplus equipment, the marginal factor and usercosts are unlikely to be much in excess of their average value.If both these conditions are fulfilled, the existence of surplusequipment is likely to lead to the entrepreneur’s working at anet loss, and perhaps at a heavy net loss. There will not be asudden transition from this state of affairs to a normal profit,taking place at the moment when the redundancy is absorbed.As the redundancy becomes less, the user cost will graduallyincrease; and the excess of marginal over average factor anduser cost may also gradually increase.

IV

In Marshall’s Principles of Economics (6th ed. p. 360) a part ofuser cost is included in prime cost under the heading of “extrawear-and-tear of plant”. But no guidance is given as to howthis item is to be calculated or as to its importance. In hisTheory of Unemployment ( p. 42) Professor Pigou expressly assumesthat the marginal disinvestment in equipment due to the marginaloutput can, in general, be neglected: “The differences in thequantity of wear-and-tear suffered by equipment and in the costsof non-manual labour employed, that are associated with differ-ences in output, are ignored, as being, in general, of secondaryimportance”.1 Indeed, the notion that the disinvestment inequipment is zero at the margin of production runs through agood deal of recent economic theory. But the whole pro-blem is brought to an obvious head as soon as it is thoughtnecessary to explain exactly what is meant by the supply priceof an individual firm.

It is true that the cost of maintenance of idle plant may often,for the reasons given above, reduce the magnitude of marginaluser cost, especially in a slump which is expected to last a longtime. Nevertheless a very low user cost at the margin is nota characteristic of the short period as such, but of particularsituations and types of equipment where the cost of maintaining

1 Mr. Hawtrey (Economica, May 1934, p. 145) has called attention toProf. Pigou’s identification of supply price with marginal labour cost, andhas contended that Prof. Pigou’s argument is thereby seriously vitiated.