Real Cost Doctrine

Abstract

Real cost doctrine is the doctrine that the supply price of a good is the price required to overcome the disutility involved in producing it. The worker, in other words, produces output up to the point at which his (decreasing) marginal utility of income equals his (increasing) marginal disutility of labour. The real cost doctrine can be seen as a half-way house inhabited by economists who had adopted a subjective theory of value but stopped short of the ‘alternative cost’ doctrine whereby the supply price of a resource is equal to its potential earning in its next most productive use. Much of the discussion which took place between English and Austrian economists concerned whether, and to what extent, the two doctrines logically came to the same thing.