I am working my way through Thomas C. Taylor’s book “An Introduction to Austrian Economics”. On page 84, he writes and quotes the following:
“As Jevons said, ‘In commerce bygones are forever bygones… Industry is essentially prospective, not retrospective.’ This is the essential meaning of the concept of ‘sunk costs.’ Mises cogently makes the same point: ‘Errors committed in the past in the production of capital goods available today do not burden the buyer; their incidence falls entirely on the seller. In this sense the entrepreneur who proceeds to buy against money capital goods for future production crosses out the past.’”
I am not convinced that the incidence falls entirely on the seller. Because the capital good was purchased, all the resources that went into making that good are not available for other goods. It seems that this misuse would still bid up the price of those resources that are used in other goods, so the consumer is faced with higher priced goods than otherwise. What am I missing? Thanks.
You are missing value theory. Menger was the first Austrian, I believe, to offer a theory of value. According to Menger goods are valued subjectively - that is to say, the value (and, therefore, price) of a good depends ENTIRELY upon the importance that consumers attribute to the satisfactions it renders.
Menger also identifies the value of capital goods to be ENTIRELY dependent, in turn, on the value attributed to the consumer good they are used to create. Specifically, the value of a given capital good depends upon that fraction of consumer satisfaction which the capital good contributes.
Whether someone since Menger has refined his value theory I don’t know. It is found in his Principles of Economics, which I highly recommend.
Also, I believe the following is true, but I’m not 100%, if someone cares to correct:
Note that classical economics had the causation reversed, treating a good’s value as being derived from the value of the factors of production used in creating it.
Austroglide, thanks for your help. I have an ebook version of Menger’s book. I will take a look at it. I think your last statement is correct which is where I was having trouble. Thanks again.