DIFFICULTIES AND EXPLANATIONS
A chapter may be devoted to answering certain doubts which naturally
arise in the reader’s mind, and to disentangling some complications
which hide the working of our fundamental law.
I. Some goods are perishable, some durable; some are single goods,
some are groups of separable elements; and, of these groups again,
some are composed of homogeneous, some of very heterogeneous elements.
Consequently there is a difference in the way in which goods give off
their use, and the marginal utility is not always perfectly obvious.
Thus the first warning we require to take to ourselves is that we must
make sure what really is the good we are valuing. In the illustration
of last chapter, it was the sack of corn, not the individual grains
of corn; it was, that is to say, a group of homogeneous elements
considered and valued as a whole. Obviously this is a very different
kind of good from, say, a horse or a piano. As durable goods, the
latter are, economically, a complex of all the services which they
are capable of rendering during their lifetime as goods: their value,
therefore, is to be determined by the least use to which their
services, one year with another, are put, and not by the least use to
which, exceptionally, they are put. Otherwise we should conclude that
the utility which a hunting horse may sometimes put forth in drawing a
plough, or that which a piano may render at the hands of a schoolgirl,
are the marginal utilities determining the value of these goods.
Neglect of this consideration led Schäffle to make the objection that,
in desert journeys, the traveller’s skin of water, according to our
theory, would be measured by the least use to which the water was put:
that is to say, the quantity of water employed, say, in washing, would
measure the value of the whole skin, while, practically, everybody
can see that a good, the possession or non-possession of which meant
life or death to the traveller, could not be measured by its washing
value. The answer is that here the good which is being valued is the
whole water-skin, not the individual drops of water: what measures
its value is the amount of wellbeing that would be lost if the _skin_
were lost. If, on the other hand, we were valuing _individual_ cubic
inches of water in the skin, or if we were valuing _one_ skin among
many, then Schäffle’s calculation would be quite right: that the least
use to which the good being valued—the cubic inch or the skin—was put,
determined the value of that particular good, the cubic inches or the
skin.
Similarly, if we ask what is the value of a water-supply to a city,
we are putting a different question from “What is the value of
the individual gallon of water?” The supply, _as a whole_, is the
indispensable condition of a collective human want; the unit of
valuation here is not the gallon, but the whole supply. So with the
value of a mill stream. We must not confound it with the valuelessness
of water as drinking water. What the miller values and pays for is
the head of water, and on this the individual cups or gallons used
for drinking make no difference. Indeed, we have here one of the
exceptional cases mentioned in the beginning of last chapter, the
valuation of a single good. The water-supply in the above illustrations
cannot usually be put alongside of similar supplies and considered as a
member of a stock. Its value is measured by the entire utility which it
affords.
A more difficult case is presented by the phenomenon of “capitalised
value.” A quarry or mine which will be worked out in fifty years is
valued at a sum much less than the sum of its fifty annual outputs.
These annual outputs are seen in a perspective of value diminishing
according to their remoteness in time. Say that the first year’s output
is £100, the second (at an interest rate of 5%) will _now_ be worth
only £95.23, the third, £90.70, and so on. Adding these together, we
obtain a sum which is very much less than £100 × 50, and we express
it—conveniently if somewhat misleadingly—by saying that the capital
value is so many years’ purchase of the annual rent. In other words, to
determine the marginal utility of a durable good involves a calculation
of the agio on present goods as against future.[11]
[11] The difficult subjects of capital value and of interest on durable
goods are fully treated in Böhm-Bawerk’s _Positive Theory of Capital_.
See particularly p. 339.
II. One must guard against an easy misunderstanding of the expression
Lowest Use. Most goods permit of two or more entirely distinct kinds
of use: a book, for instance, may be read, or it may be used to light
a fire. On the principles just laid down, one might think that it
is the latter which determines the value of the book. There are two
mistakes here. The first will be seen on referring to the terms of our
cardinal proposition. It is the least use to which a good is put, and
is, of course, _economically_ put, that decides—not the possible uses
to which it may be put. If we were valuing two exactly similar copies
of one book, and if the _only_ uses to which these copies could be
put were, to be read or to be burned, then the value of each would be
waste-paper value.[12] But this is an almost inconceivable supposition.
Books are made to be read, and to enumerate lighting of fires among the
possible _uses_ of a book is to make the mistake already alluded to—of
not being clear as to what is the good that is being valued.
[12] Just as the nutritive value of the horse competed with its draught
value during the siege of Paris.
The second and more important mistake is that here we are presenting
a case which is essentially different from the typical one given in
last chapter. In the case of the peasant we are valuing one of a stock
of five similar goods, and concluded that the use to which the fifth
sack was put determined the value of the five. In other words, we had
a _stock_ of goods competing for employment. Now we have employments
competing for one good, and, where a good or stock of goods is not
sufficient for all possible employments, of course the only economical
possibility is that the highest use, and so the highest marginal
utility, should decide the value.
III. It follows from what has been said that the value of a good is
almost never measured by the utility it actually affords,—its utility
to _me_,—but by a foreign utility. In our first illustration of the two
biscuits, the utilities actually afforded by the biscuits were, the
satisfaction of a man’s hunger and the satisfaction of a dog’s hunger;
but the value of the particular biscuit which actually satisfied the
man’s hunger was measured by the use of the biscuit to the dog. In
modern circumstances, where the existence of money and the presence of
stock permit of goods being instantly exchanged for other goods, we
can—and do almost unconsciously—change the disposition of our resources
so as to shift the loss (which will define our marginal utility) to the
least sensitive part.
Suppose that a thrifty housewife has laid in her winter stock of
butter, and that by some accident it gets spoiled. Will she be likely
to do without butter for the rest of the winter? She will, of course,
replace the butter, and do without some comfort or luxury which she
would otherwise have allowed herself. That is to say, she will shift
the loss to the least sensitive part of her total expenditure. Some
part of the total satisfaction must be given up, and this will always
be the least in her particular scale. In the circumstances, the
satisfaction she now denies herself indicates her least urgent want.
Not—be it remembered—her last conceivable want, or her last actually
felt want, but the last want that was satisfied when she had the means,
or the first that was deprived of its satisfaction when she had to
curtail her expenses; in short, the last want satisfied.
Similarly, if I am calculating the loss of value which I suffer from a
horse going hopelessly lame, I do not estimate it by the satisfactions
of riding and driving I am likely to lose. I replace the horse by
economising in other things—perhaps by doing without my summer
holiday—and the value of the horse is measured by the “foreign” utility
of the summer holiday.
IV. There is a question which naturally rises out of all that has
preceded. The value of goods is measured by the lowest, or least, or
last use economically made of them:—What determines that this or that
particular use is the last? In other words: What determines the _level_
of the marginal utility? The answer is;—the relation existing between
a man’s wants and the resources or provision he has to meet them. If
his wants are few and his resources abundant, the marginal utility will
be low, for here all the more urgent wants will be satisfied, and the
only wants left to satisfy will be insignificant ones. The value of
an additional sovereign to a rich man, for instance, is very small,
simply because he has few wants that remain unsatisfied. The same is
the case if wants are what we might call “weak”; to the plain liver,
the value of the additional sovereign is perhaps as small as to the
rich man. If, conversely, a man’s wants are many and strong, and his
means scanty, the marginal utility will be high, and the sovereign will
find wants, and urgent wants, waiting to welcome it. “It comes nearly
to the same thing,” to quote Böhm-Bawerk, “to say that Usefulness and
Scarcity are the ultimate determinants of the value of goods. In so far
as the degree of usefulness indicates whether, in its way, the good is
capable of more or less important services to human wellbeing, so far
does it indicate the height to which the marginal utility, in the most
extreme case, _may_ rise. But it is the scarcity that decides to what
point the marginal utility actually does rise in the concrete case.”