The Cost of Money (Interest Rates) - 5 as the cumulative total for Year 1 through Year 11. Because the cumulative total increased by 8.2 percent when Year 11 was added, the expected rate for Year 11 must 8.2 percent.

The distinction between real prices and ideal prices is a distinction between actual prices paid for products, services, assets and labour (the net amount of money that actually changes hands), and computed prices which are not actually charged or paid in market trade, although they may facilitate trade.^[1] The difference is between actual prices paid, and information about possible, potential or likely prices, or 'average' price levels.^[2] This distinction should not be confused with the difference between 'nominal prices' (current-value) and 'real prices' (adjusted for price inflation, and/or tax and/or ancillary charges).^[3] It is more similar to, though not identical with, the distinction between 'theoretical value' and 'market price' in financial economics.^[4]

Alfred Marshall calls real cost of production as a ‘social cost’. Real cost refers to the payments made to the factors of production to compensate for disutility’s of rendering their services. It is computed in terms of the toil, trouble, pain and discomfort involved for labour, when it is engaged in production.
To find out, simply take your total expenses per issue (including production and overhead costs) and divide them by the number of pages in your publication. If it costs $50,000 to put out an issue of your publication and your publication is 36 pages, your cost per page to publish is 50,000/36 = $1,388 per page.

Characteristics[edit]

Ideal prices, expressed in money-units, can be 'estimated', 'theorized' or 'imputed' for accounting, trading, marketing or calculation purposes, for example using the law of averages. Often the actual prices of real transactions are combined with assumed prices, for the purpose of a price calculation or estimate. Even if such prices therefore may not directly correspond to transactions involving actually traded products, assets or services, they can nevertheless provide 'price signals' which influence economic behavior.

For example, if statisticians publish aggregated price estimates about the economy as a whole, market actors are likely to respond to this price information, even if it is far from exact, if it is based on a very large number of assumptions, and if it is later revised. The release of new GDP data, for instance, often has an immediate effect on stock market activity, insofar as it is interpreted as an indicator of whether and how fast the market – and consequently the incomes generated by it – is growing or declining.

Ideal prices are typically prices that would apply in trade, if certain assumed conditions apply (and they may not). The number of ideal prices used for calculations or signalling in the world vastly exceeds the number of real prices fetched. At any point in time, most economic goods and services in society are being owned or used, but not traded; nevertheless people are constantly extrapolating prices which would apply if they were traded in markets or if they had to be replaced. Such price information is essential to estimate the possible incomes, budgetary implications or expenditures associated with a transaction.

The distinction is currently best known in the profession of auditing.^[5] It also has enormous significance for economic theory, and more specifically for econometric measurement and price theory; the main reason is that price data is very often the basis for making economic and policy decisions.

Karl Marx[edit]

A distinction between real (or actual) prices and ideal prices, was introduced in Marx's Grundrisse notebooks.^[6] In A Contribution to the Critique of Political Economy (1859),^[7] Marx already criticizes James Steuart and John Gray because they fudged the distinction between actual prices and ideal prices.^[8] In chapter 3 of the first volume of Das Kapital, Marx states:

Every trader knows, that he is far from having turned his goods into money, when he has expressed their value in a price or in imaginary money, and that it does not require the least bit of real gold, to estimate in that metal millions of pounds' worth of goods. When, therefore, money serves as a measure of value, it is employed only as imaginary or ideal money. This circumstance has given rise to the wildest theories. But, although the money that performs the functions of a measure of value is only ideal money, price depends entirely upon the actual substance that is money. (...) The possibility... of quantitative incongruity between price and magnitude of value, or the deviation of the former from the latter, is inherent in the price-form itself. This is no defect, but, on the contrary, admirably adapts the price-form to a mode of production whose inherent laws impose themselves only as the mean of apparently lawless irregularities that compensate one another. The price-form, however, is not only compatible with the possibility of a quantitative incongruity between magnitude of value and price, i.e., between the former and its expression in money, but it may also conceal a qualitative inconsistency, so much so, that, although money is nothing but the value-form of commodities, price ceases altogether to express value.^[9]

The activity of pricing goods, services and assets, facilitating transactions, communicating prices and keeping track of them in fact consumes a very large amount of human labour-time, irrespective of whether it happens to occur in a centralized or decentralized way. Millions of workers are professionally specialized in such activities, whether as clerks, tellers, buyers, retail assistants, accountants, financial advisors, bank workers, or economists etc. If that work is not done, price information would not be available, with the result that the trading process would become difficult or impossible to operate. Whether or not this is considered 'bureaucratic', it therefore remains an essential administrative service. People cannot 'choose between prices' if they don't even know what those prices are; and, normally, they cannot just 'make up' any kind of price they like, because costing, budgets and incomes depend precisely on what price is charged.

The creation of price information is a production process – its output is worth money, because it is vital for the purpose of trade, and without it the circulation of goods and services could not occur. Price information can therefore be bought and sold as a commodity as well. But the production process of prices themselves is often hidden from view and hardly noticeable. Therefore, people often take the existence of price information for granted and as obvious, meriting no further inquiry. 'A mysterious certainty dominates our lives in late capitalist modernity: the price. Not a single day passes without learning, making, and taking it. Yet despite prices' widespread presence around us, we do not know much about them.'^[10] A price may also be attached in the course of another activity, or the pricing procedure may be a closely guarded secret rather than accessible in an open market because if competitors knew about it, this could adversely affect business income.^[11] But if pricing processes are viewed as production processes, it turns out that much more is involved than the observation of a price-tag or number might suggest.

For most of the history of economics, economic theorists were not primarily concerned with explaining the actual, real price-levels. Instead their theorizing was concerned with theoretical (ideal) prices. Simon Clarke explains for example:

The marginalists were no more concerned with the determination of the actual prices that ruled on the market than were the classical economists. All the innovators emphasised the abstract character of pure economic theory, in which the intervention of chance and uncertainty, of specific historical institutions or political interventions, could all be ignored and their consideration deferred to subordinate empirical and policy studies. Pure theory was not concerned with the determination of actual prices but with their determination in an ideal world of perfect knowledge, perfect foresight, perfect competition and pure rationality. It is against th

Real Cost Of Money Productions