The Cost Principle (Cohen)

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The Cost Principle.


Some one has well said: "Monopoly above and competition below are the upper and nether millstones between which the laborer is ground."

The value of any remedy proposed for labor's ills can be quickly ascertained by the simple inquiry, does it remove the upper or lower mill-stone? Collectivism attempts to remove the competition below. This cannot be accomplished, for to destroy competition would necessitate a system of industrial slavery that no civilized man would accept. Even were it a possible system, the leveling process by which genius is brought down to mediocrity, thrift to prodigality, and foresight to a condition which takes no thought of the morrow, is one that cannot be accepted.

State control is irresponsible, inefficient and expensive. A private business house can make a profit and sell cheaper than the state can at cost. Then why is it that state co-operation has so many champions? Why do so many able and earnest people advocate such an absurd theory? I can easily explain, for I believed and advocated it once myself, when much younger, and when I did not know as much about human nature as I do now, and hail but a superficial idea of politico-economic questions.

The cost principle is based on the theory that the selling price of a commodity should be brought down to the cost of production, and thus make it possible for the producer to buy back an equivalent of what he has produced, and, in this way, prevent the glut in the market that always exists.

This theory, when taken in connection with one that I shall explain later on, has redeemed political economy. It is no longer a "dismal science," but has been made bright with possibilities.

"Plank in" is only accepted in default of something better. Those who believe in it think the cost principle can only be realized by the removal of the competition below, and make all workers the employes of a state which produces at cost.

It has probably never occurred to these good people that their object could be attained in a practical way by removing the upper mill-stone—i. e., monopoly. Let competition be applied to the monopoly above, and the reward now absorbed by the employer would remain with the worker who produced it. To accomplish this we must abolish the privileges held by monopoly, and especially the money monopoly. The control of the money market makes it possible for the holders of money to get interest for its use. The natural price for the use of money is zero, and if we had competition in the issuing of currency it would fall to that point.

Money has been called capital par excellence because it is the tool of all trades. The carpenter needs a hammer, the bricklayer a trowel, the miner a pick; but they all need money. Since everyone needs this tool in every exchange of commodities made (beginning when the raw material is bought, thus antedating production, so to speak), the interest must be made up in the profit charged. This makes the profit system possible—it exists only because we have an interest-bearing currency. And the amount of this currency in circulation is not enough to pay the annual interest of the immense debt, public and private, that we owe, to say nothing of the principal.

The only objection against the abolition of interest worthy of notice comes from the old school of economists who said interest was not paid for the use of money, but for the use of capital, and money was not capital. According to their view, capital consisted of tools, buildings and the different products used in the immediate production of wealth. It needs but a simple illustration to explode this fallacy. Were this view the correct one, the owners of the different kinds of capital would get the interest. Is this done? Not at all. The holders of capital, no matter in what form, one and all go to the bank when they want to borrow, and it is money they borrow, and it is interest they pay for its use and for nothing else.

The demand for the repeal of the ten per cent tax on state and private banks, and the request for loans at a nominal rate of interest, are evidences of a growing intelligence of what is wanted. The first is a recognition of the political side of the question, the second is a recognition by entirely different people of the economic side. The fusion of the two is the key to the situation. The demand should take this form: We want the restrictions on the money market removed, so the debtor class, who can now furnish a security that will satisfy the holders of monopoly money, will be able to provide themselves with a non-interest-bearing currency based directly on the same kind of security. This would be the greatest step possible toward the solution of the labor question, for it would deprive the employer of his power to extort forever.

Horace Greeley, first president of New York Typographical Union, in an address to workingmen, once said: "I stand here, friends, to urge that a new leaf be turned over—that the labor class, instead of idly and blindly waiting for better circumstances and better times, shall begin at once to consider and discuss the means of controlling circumstances and commanding times, by study, calculation, foresight, union."

  • Henry Cohen, “The Cost Principle,” The American Federationist 3, no. 2 (April 1896): 28-29.