Cost, Value, and Appraisement

This section is devoted to the law of cost. I would like to make this very clear to you, because intuitively, many people believe costs determine prices. They believe it, because there is a kind of pricing mechanism in stores, in the commercial world, that appears to support that theory. Imagine I own a shoe store, and I buy shoes wholesale from a distributor for one hundred euros. Well, I add a margin of fifty, and I sell them for one hundred fifty. And everyone says, “Ah, that’s very reasonable.” So, what is the conclusion? If shoe costs rise, prices will tend to…? “Rise.” And therefore, costs appear to determine…? “Prices.” Nothing could be further from the truth. It is completely false. And now, with a little critical thought, you will grasp this immediately.