THE PRICE FALLACY OF HIGH COSTS 493 



THE PEICE FALLACY OF HIGH COSTS 



By RALPH H. HESS, Ph.D. 



CNIVBRSITY OF WISCONSIN 



THE synonymous use of the terms price and cost, in their relation 

 to the acquisition of things which may constitute a living, is re- 

 sponsible for a large factor of error in popular discussion and opinion 

 concerning the so-called " high cost of living." Because statisticians 

 have discerned a rise of approximately forty per cent, in the average 

 of commodity prices w^ithin the decade, it is being taken for granted 

 that the cost of living has advanced coextensively ; and this conclusion 

 has, in turn, become the premise of serious projects in contemplation 

 of social and economic reform. 



Although jjrice and cost may, in conventional phrasing, be inter- 

 changeable without confusion of ideas, the discussion of changing com- 

 modity prices and concurrent costs of living necessitates a discrimi- 

 nating use of the terms. As a matter of fact, an increase in the aver- 

 age of prices may be no proof of change in the average cost of living 

 during the same period; and, in any case, price changes offer only in- 

 direct evidence and unreliable criteria of cost factors and movements. 



The price of an article merely indicates its money-value — its market 

 equivalent in terms of the standard metal. The cost of an article, how- 

 ever, is the measure of conscious effort and sacrifice necessary to gain 

 its possession — the exertion of labor, the discomfort of abstinence, and 

 the forfeiture of time and resources essential to its production or ac- 

 quisition. Prices are paid out of income; but income is conditioned 

 only indirectly upon the backache and brain-fag of labor, and the time- 

 consuming and capital-wearing processes of industry — these latter con- 

 stitute real costs. Since both income^ and prices are commonly ex- 

 pressed in terms of the dollar, it is necessary to consider the possible 

 correlation of the two in any instance if one would arrive at an accurate 

 understanding of the costs of living. Likewise, price-changes, during 

 any period, must be measured against income-changes for the same 

 period before a conclusion may be Justified regarding changing costs 

 of living. The problem is to trace the successive relations of economic 

 effort to consequent income, of income to prices, and of prices paid to 

 the subsequent utilities which constitute a living. 



If the industrial, commercial and leisure classes of the population are 

 collectively considered, total income and aggregate prices are subject 

 to similar concurrent changes. It is a truism, often overlooked, that 

 the sum of prices paid constitutes the total of wages, interest, rents and 



^ ' ' Income ' ' is here used in the sense of periodically accruing purchasing- 

 power. 



