The financial adjustment in the empirical law of cost

In the usual analysis of general price theory, it is observed that over a period of time price and cost tend to correspond. The correspondence, it is said, is brought about by an increase or decrease in the amount of the goods produced and in the productive facilities devoted to the production of the goods. The present study reexamines this adjustment which is technological in nature, and analyzes a second adjustment which also operates to effect a correspondence of price and cost. This second adjustment is called the financial adjustment and is based upon a recapitalization of assets with resulting changes in cost which bring it in line with price. Concrete examples are presented to illustrate the recapitalization of assets and the extent to which it takes place. The financial and technological adjustments often operate at the same time; and in a statement of the identity of price and cost both adjustments should be recognized.