Marginal utility

“ Where marginal utility theory is,—as in the conventional text-book expositions—merely another name for supply and demand theory, it is, as already shown, not applicable to the value of money, and it is useful in the surface explanation of market-prices of goods. But where marginal utility theory really seeks to get at value fundamentals, it is precisely as valid for money as for goods of other sorts—invalid, in my judgment, in both places, and for the same reasons in both. ”

“ The utility of a thing grows less as the quantity of it increases, and it is the utility of the last increment of supply, or the marginal utility, that determines the subjective value of the whole supply, and it is the ratios between these subjective values that determine exchange values. Air and water, for instance, have no great utility, as viewed by the older economists, except where the supply is limited ”

“ Later formulations of the utility theory and the labor cost theory, as represented by the theory of Schumpeter, which we shall discuss in the chapter on "Marginal Utility," give us, in a scheme of purely static equilibrium, a picture of the adjustment of the individual values to the social values. As we shall see, they give us no account whatever of the social values. They do not explain causation at all. But they do show that there is a tendency for the individual marginal utilities of consumption to become proportional to the social values of the goods consumed by each individual ”

“ This can only be judged by finding whether, on the whole, the welfare of man has been furthered.
The marginal application of income
2. An income yields the maximum gratification when it is apportioned among goods so that their marginal utilities, as nearly as possible, are equal. Even a small income is income capable of many applications. The choice lies among many thousands of articles. Utility varies not only according to the kinds of good, but according to the varying quantities of each. Every moment, therefore, the conditions of a choice are changing. ”

“ The producer of no more than average capacity is therefore making out of you a surplus profit, which would be quite unnecessary in any well-arranged society." Such an argument is a gross caricature of the marginal conception. ”

“ If we took a more enlightened utilitarianism for our standard, we might measure the value of economic action by the net balance of rational satisfaction it afforded. A statement of value in terms of expenses of production, or of final utility as measured by money can tell nothing of the "real" effort which has gone to making a supply of wealth, or the "real" utility which is got by consumption. ”

“ Part III. Consumption of Wealth.
Chapter XXIII. Wealth Used By Individuals. Wealth to be consumed for welfare.—The only economic motive for the accumulation of wealth is its use in promotion of welfare. While the old maxim says, “A penny saved is worth two gained,” every one recognizes the penny as absolutely worthless except in view of some utility to be gained in spending it. So with every form of wealth. All economic value disappears when the thought of use is wanting. ”

“ It is the almost unlimited extent of the wants of man in the social state, and the consequent multiplicity and complexity of his means—both his wants and means proceeding from the range of his mental faculties—which have rendered it so difficult to observe and explain the laws which govern the production, distribution, and consumption of those articles of utility, essential to the subsistence and [Pg 2] comfort of the human race, which we call Wealth. ”

“ But the parallel between the utility and price of products is not characterized by this theoretical precision: either through the foresight of Nature or from some other cause, the balance between needs and productive power is more than a theory,—it is a fact, of which daily practice, as well as social progress, gives evidence. ”

“ An increase in wealth seems a solid, tangible reality; something, which, however much we may scorn it in our more precious moods, we recognize, for a rather poor community, to be an important object of endeavor. But an increase in utility seems a vague, impalpable notion, hardly deserving the same practical concern. None the less the two things are identical. We greatly deceive ourselves if we suppose wealth to be an objective reality. ”

“ How Unlike Services may be rendered by One Good at the Same Time.—What people want of any useful thing is an effect in themselves,—a pleasure or a benefit which they expect to get,—and apart from this subjective result they would not want the thing at all. The power to confer a particular benefit is a utility. Men buy goods solely for their utilities, and they measure these service-rendering powers in the things offered to them and pay for them accordingly. ”

“ The value of the productive elements is determined on the ground of utility as afforded by the products, and this holds good of the labour no less than of the coals, the machinery, and all the other means of production. To insist then on cost of production is ultimately to insist on some utility. There is no new principle to be discovered, none save utility. ”

“ In fact, so far from the labour required for their production being any guide to their value, it is their value that will determine the amount of labour which will be ventured in their production. A single word may be added in explanation of the conception of social utility. Of course a commodity which is of no use to any one but its owner has no economic value, unless it happens to get lost, and, in any case, it is of no consequence in the present question. ”

“ It is important for our purposes to discriminate carefully the three kinds of Utility: (1) what is wholly disconnected from the efforts of men, and comes freely from the hand of God; (2) what is mingled with the unpaid efforts of men, so that the satisfaction of the desire comes partly from Nature and partly from unbought effort; and (3) the compound utility that is partly free gift and partly the result of compensated labor. The last is the only kind of Utility that stands in any connection with Value. ”

“ As has been pointed out in Chapter VIII, value depends upon scarcity and utility. The soundness of the scarcity-utility theory, as well as the unsoundness of the labor theory, may be brought out with reference to three classes of goods.
First, there are commodities which have value in spite of the fact that no labor has been expended upon them. Virgin land, the gift of Nature, is the most important example. Articles of this class have value because they satisfy men's wants, i.e. have utility, and because they are scarce. Labor has nothing to do with their original value. ”

“ The slightest whim, on the other hand, of the man who has inherited millions may count heavily in giving values to goods. For the explanation of the values of consumption goods, then, we need both the socially determined marginal utilities of individuals, and the socially determined weight which these individuals have in our economic system. This weight would involve a very elaborate explanation. Many factors affect it. We call attention here, however, especially to the fact that it rests in large part on the legal and moral values and institutions concerned with the distribution of wealth. ”

“ Criteria of Policy. The point has now been reached at which we must take into account the very important fact which was mentioned at the close of Chapter III. The maximum utility which the laws of supply and demand tend to bring about is a maximum total utility indeed, but one still measured in terms of money. An unequal distribution of wealth destroys any necessary correspondence between that and the maximum real utility. ”

“ It is in the utilization of those things which are scarce that economy is called for. These things which, being scarce, need to be economized in the interest of the largest satisfaction or well-being constitute economic goods, for which wealth is only another name. These are the things which have to be appraised, evaluated, and compared with one another with respect to their utility, in order that the limited supplies may be meted out and made to go as far as possible in the satisfaction of human desires, and in order that they may satisfy the greater rather than the lesser desires. ”

“ That utility and scarcity, and these alone, are the factors which give value to a thing, whether its utility consists in its power to satisfy wants directly or indirectly, that is, whether it be an article of consumption or a factor of production, is now perhaps sufficiently clear. That the factor of scarcity creates the necessity for economy is also fairly obvious. That it is the source also of the conflict of human interests out of which most of our moral and social problems grow may not be quite so obvious, but the following considerations will show it to be true. ”

“ When these things are brought together in society their value is found by the comparison and measurement of marginal utilities. Economic forces, like other classes of forces, act and react upon each other. ”

“ Particular parts of the supply may be lost with impunity.
Varieties of Utility.—We have used the term importance, rather than usefulness or utility, to describe the quality which, if it exists in every particular bit of a substance, makes it all a form of wealth. With due care we may use the term utility. In a way even a cup of water dipped by a fisherman from the lake is useful, for it renders a service. Though the man might lose it and be no poorer, he cannot say that the thing has no utility of any kind. He can say that it has no importance. ”

“ If we take all the barrels of flour that a man uses in ten years, there is one which is marginal, because it is worth to the man only enough to offset the sacrifice he incurs in getting it. All the others are worth more. We can arrange them in a scale in the order of their importance, the most necessary one coming first and the least important one last; and we can compare the service which each one renders with that rendered by the last, and measure the surplus of good which each one does to the user. ”

“ All the objections that can be offered in favor of property I am as well acquainted with as any of my critics, whom I ask as a favor to show their hearts when logic fails them. How can wealth that is not measured by labor be VALUABLE? And if it is labor that creates wealth and legitimates property, how explain the consumption of the idler? Where is the honesty in a system of distribution in which a product is worth, according to the person, now more, now less, than it costs. ”

“ Hence, it follows, that if a thing is to be useful, it must be not only of an availing nature, but in availing hands. Or, in accurate terms, usefulness is value in the hands of the valiant; so that this science of wealth being, as we have just seen, when regarded as the science of Accumulation, accumulative of capacity as well as of material,—when regarded as the science of Distribution, is distribution not absolute, but discriminate; not of every thing to every man, but of the right thing to the right man. ”

“ If the utility of the product, instead of wholly disappearing, should only diminish,—a thing which may happen in a hundred ways,—the laborer, instead of being struck down and ruined by a sudden catastrophe, would be impoverished only; obliged to give a large quantity of his own value for a small quantity of the values of others, his means of subsistence would be reduced by an amount equal to the deficit in his sale: which would lead by degrees from competency to want. ”

“ Until value, oscillating between its two poles,—useful value and value in exchange,—arrives at its constitution, thine and mine remain fixed arbitrarily; the conditions of fortune are the effect of chance; property rests on a precarious title; everything in social economy is provisional. What should social, intelligent, and free beings have learned from this uncertainty of value? To make amicable regulations that should protect labor and guarantee exchange and cheapness. ”

“ Why do not the economists, if they believe, as they appear to, that the labor of each should leave an excess, use all their influence in spreading this truth, so simple and so luminous: Each man's labor can buy only the value which it contains, and this value is proportional to the services of all other laborers? ”

“ The higher rate is then the greater lure. Moreover, other capitalists, who are influenced mainly by regard for future standards of living, are somewhat affected by the immediate benefit which marginal savers have exclusively in view. ”

“ Besides the mass of necessaries required for his own maintenance, he wants another amount of necessaries to bring up a certain quota of children that are to replace him on the labor market and to perpetuate the race of laborers... It will be seen that the value of laboring-power is determined by the value of the necessaries required to produce, develop, maintain and perpetuate the laboring-power. ”

“ Even if we admit that many persons fail to get a fair share, that there is gross inequality here and there, still after all, a student of mankind's activities in production, distribution, and consumption must marvel at the extent to which the rewards approximate the value of contribution. Now this is made possible by money considered as a measure of relative values, by the standard or test of fitness embodied in the thought, Will it pay, and to what extent will it pay? ”

“ What more unnatural than that labor -- the producer of all food, all clothing, all shelter -- should not be exchangeable for its full equivalent in food, clothing, and shelter; that while the things it produces have value, labor, the giver of all value, should seem valueless!
Here are men, having the natural wants of man, having the natural powers of man -- powers adapted and intended and more than sufficient to supply those wants. ”