Synopsis of the Cost Principle
“Cost the Limit of Price” was Warren’s second principle, and the mode of preservation of Individuality in the economic realm. Cost the Limit of Price, also known as the “Cost Principle” or “the Principle of Equivalents”, was something like a prescriptive version of the Labor Theory of Value. The Cost Principle preserved Individuality by harmonizing individual interests in the economy. It was intended to regulate numerous aspects of economic matters: namely, the prices of goods and services, the distribution of proceeds from industry, and the just appropriation of natural wealth. For the sake of this synopsis the Cost Principle will be treated as a trident that penetrates these three issues in particular, although Warren was clear the idea was greater in scope.
Firstly, the Cost Principle was meant to rectify the fleecing of the desperate. Society currently operates on what Warren calls “The Value Principle”. People exchange things based on what they will bring as opposed to what they cost. The repugnance of the Value Principle for Warren is almost self-evident, as most of his arguments center upon laying out unsavory examples of what commerce promotes under this mode of exchange. The only difference between the relatively extreme examples that can be illustrated of suppliers taking advantage of consumers and normal commerce is severity, not any categorical difference. The morals of the economists then become to not fleece too much, instead of not fleecing the public at all.
“The value of a loaf of bread to a starving man is equal to the value of his life : and if the price of a thing should be what it will bring, then a vender might demand of the passengers of a wrecked vessel, the whole of their future lives in servitude, as the proper price of the bread that saved their lives! But any one who should make such a demand would be looked upon as insane — a Cannibal; and one simultaneous voice would denounce the outrageous injustice, and Would cry aloud for retribution. Why ? What is it that constitutes the cannibalism in this case ? Is it not measuring the price of the bread according to its value instead of its cost, or setting a price upon the ‘thing’ according to ‘what it would bring’ ?”
Warren’s idea of exploitation is as a form of civilized cannibalism: essentially, inequitable commerce is exploitative for Warren because it is capitalizing on the suffering and desperation of others. In essence, the Value Principle represents a form of economic domination outside of overt physical domination, an inevitable outcome of the commercial warfare it engenders as each person in a transaction tries to take advantage of the other the most. The Value Principle pits the supplier against the consumer, in the sense that it promotes manipulation of the market to manufacture desperation for a supplier’s products. Activities like monopolization, confusing the public on the state of the market, speculation causing senseless fluctuation, and instilling wants in the public that aren’t genuine; all serve as pernicious features of the Value Principle in commerce.
The Cost Principle balances the power of consumer and vendor on an equitable basis, and prevents exploitation. It’s supposed to regulate all the inequities of trade, including the fluctuations of price that are characteristic of value based commerce, which only serve to exploit the desperation of the community for goods and services. This can actually hinder trade — producers hold up stock for when prices rise, or consumers wait for cheaper prices. By pricing goods and services at cost, there is no constant fluctuation, and no need for bargaining, where one person tries to make the most out of another: it is the simple facilitation of equitable trade. This is how the Cost Principle creates a spirit of cooperation rather than a spirit of antagonism in commerce. If one is to get their goods at cost, then they are willing to help make production as cheaply as possible, and therefore creates a feeling of mutuality in trade.
The true meaning of cost for Warren is not something objective that individuals had to subordinate their pricing to. “The word cost is used in its most philosophical and most comprehensive and exact sense — signifying the endurance of whatever is disagreeable.” Individuals judge their own cost that they have to endure and charge according to their own hardships in employment. No other individual can determine how costly something is for another. Labor that is twice as repugnant to one person demands twice the reward. The same labor for another may be less repugnant, and therefore not as costly. In generic terms, people get what they put in, the cost is to represent the types of personal sacrifices people make for society, and to get an equivalent for their labor is to satisfy those who take up the most disagreeable labor necessary for society to function. It is all according to one’s individuality. In practice this can have some unexpected results, for example, a framed portrait of someone’s family might actually command a very high price in a Warrenite economy. This is because parting with a picture of, say, someone’s deceased lover, would be very disagreeable to that person. It would be very costly to make that transaction. The subjective approach to Cost makes trade equitable according to INDIVIDUAL judgements, and therefore harmonizes economic matters.
The Cost Principle demands a total restructuring of how a community deals with commerce. For value based commerce, supply is adjusted to the wants of the people based on the producers guessing how they can make the most money, that is to say, the fluctuating adaptations of supply to the demand. The constant guesswork on behalf of producers therefore produced enormous waste as excesses from production need to be disposed of. In cost based commerce, supply would be consciously adjusted to demand. People would communicate their wants, and production would follow accordingly. The Cost Principle would annihilate useless speculation. Although Warren didn’t have the terminology we are now purview to, what he is getting at is a primitive articulation of replacing the supply-push economy with a demand-pull one to accompany the Cost Principle.
Secondly, the Cost Principle furnished the solution to the inequitable distribution of Capitalist production. Civilized cannibalism was likewise identified in the profits, rents, and interest enjoyed by the upper echelons of society. It became clear to Warren that society couldn’t become harmonious as long as labor was deprived of its ability to attain its product.
“It is now evident to all eyes that labor does not obtain its legitimate reward; but on the contrary, that those who work the hardest, fare the worst. The most elegant and costly houses, coaches, clothing, food, and luxuries of all kinds are in the hands of those who never made either of them, nor ever did any useful thing for themselves or for society; while those who made all, and maintained themselves at the same time, are shivering in miserable homes, or pining in prisons or poor-houses, or starving on the streets.”
By restructuring the economy to trade based on equivalent COST is to annihilate the inequity of Capitalist society. As people trade capital and land based on cost, there will be no room to accumulate profits from industry or rent from the land. The people who sacrifice the most in society will receive an equivalent to their input, and will be enriched as they enrich others.
The Cost Principle gives labor an opportunity for their legitimate reward, and the restructuring of the flow of wealth would have massively positive effects for society. The most conspicuous is a tendency towards equality instead of inequality. Meaning poverty diminishes along with the distinctions of rich and poor, opportunities expand for more people, and more are able to enjoy the surplus generated in production: in terms of both cheaper prices and a greater income. The Cost Principle furnishing equitable distribution and pricing annihilates the discord produced by Capitalist markets, and furnishes the dreams of the Communists such as Owen via opposite principles; “The antagonism of interests, supposed by communists to be inherent in Individuality, is not inherent, but only incidental to it; which antagonism is completely neutralized, and all the co-operation and economies aimed at by communism grow naturally out of the principle of Equivalents, or simple justice!”
Thirdly, the Cost Principle opens the natural wealth for everyone to exploit. Natural wealth requires no sacrifice on the part of man, and therefore is free to all. It also served to socialize all sorts of natural rents, that is, advantages attained without labor. Instead of these being sources of personal profit for no genuine sacrifice under value based commerce, these advantages would be of benefit to consumers, and no ill will would be had at the appropriation of them, since their use by some only serves to cheapen the goods enjoyed by society as a whole. Again, the Cost Principle affects all natural rents, including the individual differences in the laboring population. The unusual dexterity, brawn, or ingenuity of the laborer only serves to cheapen production. Trade Secrets no longer serve any advantage, and it becomes each person’s benefit to assist each other.
In summation: the Cost Principle overall was designed to balance individual interests with each other, to promote a sense of fraternity in commerce from its inducement of mutuality, and lays the foundation of the Sovereignty of the Individual by preserving everyone’s self-sovereignty within equitable limits.