Some Fallacies in the Interpretation of Social Cost

TLDR

Pigou and Graham’s arguments on social interference highlight common misinterpretations of cost variation with output, reject the fallacy of decreasing cost, affirm the soundness of comparative advantage, and note that competitive system defects lie beyond mechanical exchange theory. Importation is a method of using resources to produce the imported good and is employed under competitive conditions only when it is more efficient than a direct method.

Abstract

Arguments for social interference developed by Pigou and Graham illustrate common misinterpretations of the meaning of cost and its variation with output, 582. — I. The private owner of a natural opportunity secures maximum return from it by charging that rent which halts the application of investment at the point which is socially most advantageous, 584. — II. The notion of decreasing cost is a fallacy; competitive price fixation under decreasing cost or increasing returns an impossible situation, 592. — III. The law of comparative advantage in international trade is fundamentally sound, 599. — Importation a method of using resources to produce the imported good, and will be employed under competitive conditions only when more efficient than a direct method, 603. — The competitive system has important defects, but they lie outside the mechanical theory of exchange relations, 605.