Reply To: Money Costs, Prices, and Alfred Marshall


OK, but but above you say “As we approached the ERE, in your example, production of malls would increase because of the greater return. This would lower output prices and raise input prices.” I interpreted this as saying that since more malls will be built, the price of malls will fall from $10 million (presumably the increased supply of malls would result in a decrease in rents and/or increase in their cap rates or discount rates), and the total money cost of factors of production of malls will increase from $8 million, and that in the ERE the money costs and price of the mall will equal each other somewhere between $8 million and $10 million because costs will go up and price of mall will go down. Did I interpret you incorrectly? Will the price of the mall stay at $10 million in the ERE?

Basically, I’m trying to figure out if economic theory can tell me whether the value of a shopping center will tend to go down if its replacement cost is lower than its current value. I thought Rothbard was saying that costs will go up to meet value, but I thought what you were saying implied that cost and value would meet somewhere in between because costs (inputs) will go up and value (output) will go down.