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or gallon of water were offered for sale, no one would desire
it at all. In such a situation water would have as little value
as though there were no possible use to which it could
be put.

One might go even farther and name articles which,
though capable of satisfying desires or of being put to im-
portant uses, have yet become worse than worthless, that is,
have become nuisances through their overabundance. Many
of the weeds which infest our fields belong in this class. Water
in a swampy region also comes to possess a negative value,
that is, men will go to considerable expense to get rid of a part
of it, and yet it may be perfectly good water, capable of
contributing not only to human life but to plant and animal
life as well. Rabbits in Australia and English sparrows in
America will serve as further illustrations.


A commodity has value only when there is not enough of it.
We therefore reach the general conclusion that an article
(that is, a definite object, such as may be bought and sold) has
value only when it is wanted, and that it is wanted only when
there are so few objects like it as to leave the desire for it par-
tially unsatisfied. If there are so many others like it that the
desire is completely satiated, the object in question will not be
wanted at all ; and that holds true of each and every one con-
sidered singly. But if there are not enough to go round and
satisfy everybody, each and every such object will be desired
and will consequently have a value.

Following the same line of reasoning, we may reach the
further conclusion that an object has much value when it is
much desired, that is, when there are many people who desire
it and each one desires it intensely ; it has little value when it
is not much desired, that is, when there are few people who
desire it or when they who happen to desire it, desire it with
a low degree - of intensity. Its power in exchange as compared
with other things will depend on how intensely it is desired in
comparison with other things.

Physiological basis of the law of demand and supply. The
great law of supply and demand is thus seen to have a physio-
logical and psychological basis. The expression " supply and
demand " is merely a formula ; back of this formula there is the
physiological fact pointed out in Chapter II. Every desire is
satiable, and the more nearly the desire approaches the state
of complete satiation, the less intense it becomes. Thus the
reason that any superabundant article under ordinary circum-
stances has no value is because it is so abundant that every
desire is completely satiated. That is the reason why water has
little or no value in a well-watered country. Wherever it is so
scarce that the desire for it is not completely satiated, as is the
case in an arid climate where people are trying to farm, it has
a value. It is the physiological or psychological state of the
desire which furnishes the real basis for the law of supply


and demand. With a given demand, the greater the supply the
more nearly all desires will approach the point of satiation, and
the more indifferent everyone's attitude toward the object
becomes ; on the other hand, the smaller the supply, the more
intense the desire for each unit of that supply, and the more
anxious men are to get it.

As there are two reasons mentioned above why an object
may not be desired at all, there are also two similar reasons
why the desire for it may be one of little intensity. In the first
place, the possible uses to which the object may be put may be
of very little consequence to anybody ; it may gratify a mere
whim or caprice. In the second place, the supply may be so
great that the desire is almost completely satisfied, and in this
case no one will care very much about getting more than he
has, nor will anyone give very much to get more. Under either
set of circumstances no one gains very much in the way of
satisfaction or well-being if some producer adds to the supply ;
no one loses very much if some destroyer subtracts from the
supply. This may seem very simple, but it is one of the most
important considerations in the whole field of economics ; for
the same law of value, as we shall see when we take up the
study of distribution, applies to the labor of men as well as
to material commodities. There are the same fundamental
principles underlying the law of supply and demand in one
case as in the other.

The relation of utility to value. When we say that an
object has value only when it is wanted, we are virtually saying
that it has value only when it has utility, for utility is by defini-
tion the power to satisfy a want or a desire. Whether that
want be physiological, like hunger, or whimsical, like the desire
for the latest novelty, does not affect the case in the ordinary
economic sense. Economists have generally refrained from
passing moral judgment on the quality of desires, though there
is a tendency to depart from this tradition. If the gratification
of a vicious desire does harm in the long run, it tends to


destroy the well-being and prosperity of the community. This
is a consideration of great economic importance. The tend-
ency, however, in a democratic society has been to assume that,
whatever the people happen to like, it is their affair and not
the affair of the economist or the moral philosopher. If there
is a popular demand for a cheap and tawdry article, or for
demagogical politics, there would seem to be equally good rea-
sons in either case for saying that the people should have what
they like. To set one's self up as a moral censor, to pass judg-
ment on the desires of the people either in commercial or in
political affairs, has generally been considered undemocratic.
Under the impulse of this rather extreme ideal of democracy,
utility has been defined, as stated above, as the power to satisfy
desires, whether the desires be good, bad, or indifferent. Any
object, therefore, which possesses utility, or the power to satisfy
a desire, possesses one of the essential factors in value.

Meaning of scarcity. When we say that an article has value
only when the desire for it is left unsatisfied, we are virtually
saying that it has value only when it is scarce. Scarcity is by
definition insufficiency to satisfy desires. A thing may be rare
without being scarce ; that is to say, however little there may
be of a certain article, if that little is more than sufficient to
satisfy all desires, it can hardly be said to be scarce ; or how-
ever much there may be of a thing, speaking absolutely, if there
is not enough to satisfy all desires, it is said to be scarce.
Flies in the winter time may be rare, but they are not scarce
in the technical economic sense, since even then there are more
than are wanted. Speaking absolutely, there may be more
grass than weeds on a given farm, but relatively to the farmer's
desires, grass may be scarce while weeds are superabundant.
If we assume that the article in question is appropriable, or
capable of being possessed and enjoyed, and not, like the
moon, entirely beyond our reach, we may say that anything
which possesses both utility and scarcity will have power in
exchange, and nothing else whatsoever will have that power.


The utility of an article is the basis of the demand for it ;
the scarcity of the article is the measurable limit of its supply.
Every boy knows that the first apple which he eats at any one
time tastes better than the second, provided they are alike, and
the second better than the third, and so on. He knows also
that, however capacious his appetite, if the supply of apples
holds out, he will ultimately reach a point when he doesn't
care for any more ; in other words, he will reach the point of
complete satiation so far as apples are concerned. When this
point is reached, apples have lost their utility for him, and he
becomes indifferent to them. He may still be willing to give
something in exchange for them in anticipation of to-morrow's
hunger, but if he has a supply sufficient to satisfy not only
present but future desires, then he becomes absolutely indiffer-
ent and gives nothing in exchange for them.

Social value. We now approach a secondary phase of the
law of value. Even though his own desire for apples may be
completely satiated, not only in the present but in the antici-
pated future, his commercial instinct may prompt him to prize
them, not because he himself desires to consume them, but
because he can trade them to someone else for objects which
he himself desires. At this stage he has arrived at the point
where he begins to take account of social utility as well as of
individual utility. If he perceives that there is in society around
him an unsatisfied desire for apples, he may make use of that
unsatisfied desire to acquire desirable things in exchange for
his own surplus apples. This soul-compelling power, that is,
power in exchange, which commodities possess on the market,
he is able to make use of to his own advantage. Thus we see
a great many men producing articles far in excess of their own
needs, because they know that these articles are exchangeable for
other things which they need. We see a considerable body of
men doing nothing except to trade in objects of general social
desire. But the laws which govern social valuation are funda-
mentally the same as those which govern individual valuation.


There must be somebody in the community round about who
has less of the object than he wants ; otherwise neither the
producer nor the trader would be able to exchange the object
for other desirable things.

Diminishing utility. The satiability of the desire for a given
commodity leads to what is known as the law of diminishing
utility, desire and utility being reverse aspects of the same
thing. The desire exists in the human being and is that which
the object of the desire is capable of satisfying. Utility exists
in the object outside the human being and is that which is
capable of satisfying his desire. In proportion as the human
being's desire is capable of being satisfied, in that proportion
A does the utility of

the object which
satisfies that desire
diminish as its quan-
tity increases. This

p x_ diminishing utility

of a desirable ob-
ject is sometimes illustrated by means of a diagram, of which
the above will serve as a sample.

Let us measure the quantity of a certain commodity along
the line OX, and the intensity of the desire for it along the line
OY. When the quantity is represented, for example, by the
line OG, each unit is desired with an intensity represented by
the line OE ; and when the quantity is represented by the line
OH, the desire is so well satisfied that the intensity of the
desire is now represented by the line OF. If the quantity were
to increase until it was represented by the line OD, all desires
would be satiated ; that is, the desire for any particular unit of
the supply would have no intensity, there would be no desire
left. And, finally, if the quantity were to increase still farther,
the commodity might be considered as a nuisance, and men
might begin to desire to have less of it rather than more.
The curve ABCD becomes the utility curve according to the


assumptions. Just what shape this curve would take in any
individual case would be hard to determine. One thing, how-
ever, is certain, and this is the really essential thing, that,
whatever its shape, it is a descending curve. Its distance from
the line OX diminishes as we approach the point D. That is
as certain as that a desire is satiable. Therefore we are safe
in using a descending curve to illustrate the decline in the
intensity of the desire for a commodity as the quantity of the
commodity increases in proportion to the number of people
who desire it.

The total utility of the commodity is represented by the
surface bounded by the lines OX, OY, and the curve ABCD.






Its marginal utility, that is, the effective utility of any single
unit of the supply, is represented by the line OE or BG when
the quantity is OG, and by the line OF or CH when the
supply is OH.

If now we consider two commodities whose quantities and
utilities were represented by the two diagrams above, we shall
see how the relative intensity of the desires for the two
commodities will affect their relative values.

Let us assume that the curves ABC in the two diagrams
represent the diminishing intensity of the desire for potatoes
and oranges respectively, and the line OD in each diagram the
available quantity of each commodity. The quantity of potatoes
being so much larger than that of oranges, the desire for them
is much more nearly satiated than is the desire for oranges,
though the total utility of potatoes is much greater ; that is to


say, a pound of potatoes out of the total supply is very slightly
esteemed or desired, whereas an equal quantity of oranges out
of the much smaller supply is more highly esteemed or desired.
Under these circumstances a pound of oranges would have as
much power in exchange as several pounds of potatoes ; that
is, oranges are more valuable than potatoes.

By increasing the number of diagrams, the relative power
in exchange of a number of commodities could be illustrated
in the same way. That, however, would introduce no new
principle, but would only complicate matters.



Causes of scarcity. It was shown in the last chapter that
commodities must be both desirable and scarce in order to
possess value. We have now to inquire why such things are
scarce. There are four reasons which come within the limits
of our comprehension. These we may call (i) "the niggard-
liness of nature," (2) the expansion of desires, (3) the cost of
production, and (4) monopoly.

" Niggardliness of nature." When the term "-niggardliness
of nature " is used, it is not intended to cast reflections upon
nature, nor to imply that she is not bounteous in many respects.
It is merely to call attention to a fact which cannot well be dis-
puted ; namely, that in many places men have congregated in
numbers greater than nature has there made provision for. De-
sirable things are scarce in those places at least, and it is at
least necessary to bring supplies from other places where there
is a surplus. Moreover, there are many things which we desire
which nature does not supply at all in the form in which we
desire them, though she supplies the raw materials out of which
we may make them. Again, some things which we desire can
only be produced at certain times and seasons. They must
therefore be preserved and kept for other times when they
will be needed.

Expansion of desires. The fact that nature does not supply
us with everything we desire in the exact forms and at the
exact times and places when and where we happen to desire
them may be in part due to the fact that we desire more re-
fined products than grow in a natural state, or to the fact that
great numbers of us choose to live in places where such



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products do not grow in sufficient abundance. It is only a
symptom of the maladjustment between man and nature. It is
not necessarily the fault of either man or nature ; it is simply
a fact of experience, and we must make the best of it. There
is, however, a marked tendency for human desires to expand.
" When goods increase, they are increased that eat them."
In the language of the day, "The richer we get, the more we
want." Therefore we must expect an indefinite continuation of
the condition wherein some desirable things are insufficient in
quantity to satisfy everybody. We shall therefore continue try-
ing to increase the supply of desirable things in the forms in
which they are wanted, and at the times when and the places
where they are wanted. This is called the production of utili-
ties, or, more properly, the adding of utilities to material things,
form utility, time utility, and place utility.

Cost. If the efforts which we have to make in order to pro-
duce utilities were altogether pleasant and not in the least
degree unpleasant or disagreeable, there is no reason why most
things might not be produced in such abundance as to satisfy
everybody completely. Some things, of course, cannot be in-
creased by any human effort. Meteoric iron has long served as
an illustration. Autographs of distinguished men of the past,
the paintings of old masters, first editions of books, and a
number of other illustrations might be given. But if we are
speaking of an ordinary reproducible commodity, we are safe
in saying that unless there were some difficulty in the way of
indefinite reproduction, some unpleasantness, irksomeness,
or fatigue connected with its production, its supply would
certainly increase until everyone had all he wanted of it.

Effort not always irksome. Illustrations are not hard to find
of desirable commodities which have to be secured by human
effort, but which, because the effort is pleasant rather than un-
pleasant, become so abundant as to command no price. Trout
are generally regarded as a delicacy and are greatly desired.
They can only be caught by considerable muscular effort and


by the exercise of great patience and skill. And yet, in certain
communities where the demand is not very great and the fish-
ing not too arduous, trout are caught for sport in such numbers
as to supply the neighborhood. They become free goods and
are given to those who desire them without money and without
price. If there were more consumers, or fewer persons who
enjoyed the sport of fishing, there would not be enough to go
around. Those who did not get as many as they desired would
then be willing to pay a price in order to get more. In other
neighborhoods, flowers are grown for pleasure. The demand
not being very great, and there being a number of people who
enjoy gardening, there is such an abundance that everyone is
supplied free of charge. Poultry raising is a pleasure to many
people if they do not have to work too hard at it. In most
neighborhoods, however, there is a demand for eggs and poultry
that cannot be completely satisfied with the products of those
who keep poultry for the pleasure of it. In order to induce
these to produce more than is pleasurable, and to induce
others to do the work who do not enjoy it at all, a price
must be paid. The price is paid, virtually, to overcome the
disinclination of producers.

Cost is disinclination. All the reproducible products which
sell on the market, and which are not monopolized, are limited
in supply by some form of disinclination or reluctance to carry
on the work of production. This disinclination may resemble
that which one finds in the average fisherman, gardener, or
poultry keeper, to whom the work in small doses is not
irksome, or it may be of a different sort altogether. In the
case of the fisherman, the gardener, and the poultry keeper,
their work may be pleasant rather than unpleasant up to a cer-
tain point. Almost anyone likes a certain amount of this kind
of work, though some of us are easily satisfied. Beyond that
point such work becomes irksome and fatiguing, and we keep
at it only on condition that someone pays us for it. Up to that
point it was play ; beyond that point it literally becomes work.


Opportunity cost. Where two kinds of work are pleasurable
and one has to choose between them, the fact that one has to
surrender the one form of pleasure in order to pursue the
other introduces an element of cost. It is reported of a certain
man that he was passionately fond of gardening, but could
never stick to it because as soon as he began to dig he found
worms, and they reminded him of fishing, of which he was even
fonder than of gardening.

In other cases the work is disagreeable from the very start.
There is no element of play in it. No one will do any of it
unless he is paid for it. In still other cases the work itself
would be pleasurable rather than disagreeable up to a certain
point, if it were not for the fact that there is something else
that one would rather be doing. A boy might not ordinarily
mind working in the garden, but when there is a circus in town
or a ball game going on, gardening suffers in his estimation by
comparison with these other opportunities. Whenever we have
to work long hours, there are pretty certain to be many other
and more pleasurable things which we would rather do. Having
to give up these other opportunities would make our work
irksome even if it were not so of itself.

The resistance which has to be overcome in order to get
men to work. Cost, or cost of production, is the general name
which we apply to the resistance which has to be overcome in
order to get a thing produced. The real resistance is the
resistance of the human will, as shown by the fact that even
though physical effort has to be put forth, so long as the effort
is pleasurable it does not have to be paid fo^ As soon as it
becomes irksome it has to be paid for. It is a matter of choice,
and the price paid is a means of influencing choice. The irk-
someness of the effort causes men to choose against putting
forth the effort ; the price paid for the article causes them to
choose in favor of it. Such words as irksome, unpleasant, or
disagreeable describe certain efforts as they appeal to the
mind. The words disinclination and reluctance describe the


attitude of the mind toward the efforts which men would not
be willing to make unless they were rewarded for it.

Distinction between play and work. The difference between
play and work is found just here. Play is effort of both mind
and body which is put forth for the sheer pleasure of the effort
itself. Work is effort which is put forth for the sake of a re-
ward which is detachable from the effort or the action. Under
very favorable circumstances all necessary effort might con-
ceivably take the form of play, and in that case there would be
no such thing as cost of production. A community made up of
people with very simple habits and very strenuous natures, and
in a very favorable environment, might possibly reach such a
delectable state. Having very simple habits, the inhabitants of
this community would be able to get the greater part of their
higher satisfactions out of those things whereof nature is boun-
teous, such as the sky, the clouds, the verdure, and pleasant
company. Living in a very favorable environment, they could
produce such things as had to be produced with little effort.
Having very strenuous natures, abounding in energy and de-
lighting in effort, they could do the necessary work of produc-
tion without any disinclination or reluctance. This, however,
would be a kind of earthly paradise which we may dream about
but are not likely to realize.

Kinds of cost. When we say that the price of an article
has to be high enough to cover the cost of production, we really
mean that it has to be high enough to overcome the disin-
clination of men to do whatever is necessary in order to pro-
duce it. This disinclination or cost is of various kinds and
degrees. Mention has been made of those operations which
are inherently disagreeable from the very start. This may be
called disutility or pain cost. In other cases there is no dis-

Online LibraryThomas Nixon CarverPrinciples of political economy → online text (page 23 of 48)