1. "Price" for the exchange value requested or accepted by a seller, "cost" for the exchange value offered or accepted by a buyer.
An exchange value accepted by a seller is, for that seller, revenue, in the accounting sense of the word. An exchange value accepted by a buyer is, for that buyer, an expense, in the accounting sense of the word, with one exception: the remuneration of a placement in capital, which the enterprise settles by an allocation of its earnings (Proposition 6.3).
2. The vocabulary of accountants and management controllers frequently uses the distinction between price and cost.
The same is true in everyday life. Sellers' prices are, once the exchange is concluded, costs for buyers.
3. Using the words price and "cost" as just said is not only convenient.
Some speak of the "cost of capital", but refuse or are reluctant to speak of the "price of capital". Others admit that a rate of profit distributed over capital is a price, but refuse or are reluctant to speak of the "cost of capital."
The reality of economic exchanges means that every price is, for the co-exchanger, a cost. Since the exchange value of every commodity is a price and a cost, every remuneration of labor and of placement in capital is a price and a cost. In this sense, cost names the exchange value borne by the buyer, and expense names its accounting recognition. The two coincide for every purchase except the placement in capital, whose cost the enterprise bears out of its earnings.
4. Starting from the observation that the prices of composite commodities tend to be sums of costs begins an explanation.
The level of dearness of these commodities, often produced in large series, is not arbitrary. But what are the determinants of the remuneration of savers and workers? In order for the explanation to take shape, it must include two elucidations, one on the formation of the prices of the elementary and primary commodity that is the service of labor in exchange for its remuneration, the other on the formation of the prices of the service of placements in capital.
5. The formation of the price of capital comes first: the cost of capital enters into the formation of the price of labor.
First of all, the elucidation of the formation of the price of labor, or first of all the elucidation of the formation of the price of capital? Does the cost of capital play a role in the formation of the price of labor? Or is it on the contrary in the formation of the price of capital that the cost of labor intervenes?
Every elementary exchange is oriented. The saver and the worker each sell a service; the enterprise buys both (Proposition 3.1). The remuneration of a placement in capital is a price for the saver and a cost for the enterprise; the remuneration of labor is a price for the worker and a cost for the enterprise. Three established facts fix the order of elucidation.
First, placement in capital is the only financing indispensable to the creation and operation of an enterprise (Proposition 2.22, argument 2; Proposition 5.5). An enterprise buys labor once it exists, and it exists through a prior placement in capital.
Second, the national stock of capital governs the stock of employment, and the average rate of profit on capital governs the variation of that stock (Propositions 7.2 to 7.6, EPCE feedback). The price of capital thus governs the quantity of labor bought.
Third, at the macronomic scale, total placement income is formed first, at a sufficient level, and total labor income is the remainder: TLI = TI – TPI, with TPI = ROP × PS (Propositions 8.3, 8.4 and 8.10). Hourly wage differentials then regulate the distribution of this remainder among wage-earners (Proposition 9.6).
The relation runs in one direction: the sufficient level of the national average rate of profit varies with the state of employment (Proposition 7.8), independently of the cost of labor. This order is macronomic. At the mesonomic scale, the earnings and profits of a given enterprise leave the wages of its staff free to rise (Proposition 8.4, argument 5); at the micronomic scale, the truly complete cost price of a composite commodity incorporates both costs (Chapter 11). For this reason, Chapters 5 to 7 (capital, profit, employment) precede Chapters 8 and 9 (distribution, wages).