bpyrighlN^ COPYRIGHT DEPOSIT. I^art, §»cl)affner & JSarp Pri^e economic ©ggaps THE CAUSE AND EXTENT OF THE RECENT INDUS- TRIAL PROGRESS OF GERMANY. By Earl D. Howard. THE CAUSES OF THE PANIC OF 1893. By WilUara J. Lauck. INDUSTRIAL EDUCATION. By Harlow Stafford Person, Ph.D. FEDERAL REGULATION OF RAILWAY RATES. By Al- bert N. Merritt, Ph.D. SHIP SUBSIDIES. An Economic Study of the Policy of Sub- sidizing Merchant Marines. By Walter T. Dunmore. SOCIALISM: A CRITICAL ANALYSIS. By O. D. Skelton. INDUSTRIAL ACCIDENTS ANDTHEIR COMPENSATION. By Gilbert L. Campbell, B. S. THE STANDARD OF LIVING AMONG THE INDUSTRIAL PEOPLE OF AMERICA. By Frank H. Streightoff. THE NAVIGABLE RHINE. By Edwin J. Clapp. HISTORY AND ORGANIZATION OF CRIMINAL STATIS- TICS IN THE UNITED STATES. By Louis Newton Robinson. SOCIAL VALUE. By B. M. Anderson, Jr. FREIGHT CLASSIFICATION. By J. F. Strombeck. WATERWAYS VERSUS RAILWAYS. By Harold Glenn Moulton. THE VALUE OF ORGANIZED SPECULATION. By Harri- son H. Brace. INDUSTRIAL EDUCATION: ITS PROBLEMS, METHODS AND DANGERS. By Albert H. Leake. THE UNITED STATES INTERNAL TAX HISTORY FROM I 86 1 TO I 87 I . By Harry Edwin Smith- WELFARE AS AN ECONOMIC QUANTITY. By G. P. Watkins. CONCILIATION AND ARBITRATION IN THE COAL INDUSTRY IN THE UNITED STATES. By Arthur E. Sufiern. THE CANADIAN IRON AND STEEL INDUSTRY. By W.J. A. Donald. HOUGHTON MIFFLIN COMPANY Boston and New York ^att, ^c^affnet & ^CiX\ Qptrije (^^0a^« XVII WELFARE AS AN ECONOMIC QUANTITY WELFAEE AS AN ECONOMIC QUANTITY BY G. P. WATKINS BOSTON AND NEW YORK HOUGHTON MIFFLIN COMPANY ®|>e Mxtt^tJt ^tz^^ Camlirib0e 1915 ^^^ 3 COPYRIGHT, I9IS, BY HART, SCHAFFNER & MARX ALL RIGHTS RESERVED Published February iqis FEB 25 1915 C) CI A ^ ^ 1 B 6 'o PREFACE This series of books owes its existence to the generosity of Messrs. Hart, Schaffner & Marx, of Chicago, who have shown a special interest in trying to draw the attention of American youth to the study of economic and commercial subjects. For this purpose they have delegated to the un- dersigned committee the task of selecting or approving of topics, making announcements, and awarding prizes annu- ally for those who wish to compete. For the year ending June 1, 1913, there were offered: — In Class A, which included any American without re- striction, a first prize of $1000, and a second prize of $500. In Class B, which included any who were at the time undergraduates of an American college, a first prize of $300, and a second prize of $200. Any essay submitted in Class B, if deemed of suflBcient merit, could receive a prize in Class A. The present volume, submitted in Class A, was awarded the second prize in that class. J. Laueence Laughlin, Chairman. University of Chicago. John B. Clark, Columbia University. Heney C. Adams, University of Michigan. Horace White, NeiD York City. Edwin F. Gay, Harvard University. AUTHOR'S PREFACE This essay is a study in the neglected field of economic consumption. It is a fragment of what was planned as a comprehensive treatise of this division of economics, and largely developed during my graduate work at Cornell University. But the part may be the better for standing by itself. It is frankly theoretical in general character. I quite agree that questions susceptible of detailed inductive or statistical investigation should receive such treatment instead of merely being given their place in a theory. That, however, must come later. Most of the essay assumes familiarity with the concepts and terms of recent economics and is technical in its inter- est. Certain chapters, however, — which are not among the earliest, — may perhaps be intelligible and interesting to the reader whose chief equipment is common knowledge and common sense. These are especially chapters viii (with VII as preliminary) and xvi; and also, though to a less de- gree, chapters v, xi, xiii, xiv, and xv. Whether a person of practical or reformative interest would be justified in going directly to the concluding chapter is to be doubted. No fundamental premises of economic thought are es- sentially affected by the ideas contained in this essay. It does propose certain qualifications and extensions of ac- cepted principles. What may be considered the general contribution it makes consists in the incorporation into systematic economic thought of some ideas that are, if not themselves new, such as can be found elsewhere — perhaps in common thought or in writings of no scientific standing — only as disconnected apergus. My scientific obligations, and the interrelations of the ideas developed to those of others, are indicated in text viii AUTHOR'S PREFACE and in footnotes, but I am not sure that all have been duly noted, since the matter was originally written some time ago and has undergone many changes. Though much that is characteristic of the Austrians — Menger, Wieser, and Bohm-Bawerk — is not accepted here, my point of depar- ture is obviously the same as theirs. The development from that point is in a different direction. The differences that emerge are partly, though not wholly, due, to this diver- gence of the subjects treated. The essay is, however, largely a criticism of the usual exposition of utility doc- trine. Suggestions received from recent American theory are also frequently negative, belonging, that is, in the category of association by contrast or opposition. The manuscript has been subjected to the criticism of Professor Alvin S. Johnson, who acted in place of Pro- fessor Clark as a judge of the papers submitted to the Hart, Schaffner & Marx Committee and has reviewed on its behalf the essay here pubHshed. He has made im- portant suggestions regarding terminology and also to- ward connecting up the ideas presented with those of other economic theorists, and he has made it necessary for me to elaborate and defend or to amend certain points. But I have no reason to suppose that he would accept as valid all the theories here set forth. With this exception the essay has not had the benefit of the friendly criticism of economists. But I am much indebted to two of my associates in the Bureau of Statistics and Accounts of the Public Service Commission, namely, to Mr. James L. Bahret, for numerous valuable editorial suggestions, and to Mr. L. H. Lubarsky, not only for drafting the diagrams, but for important mathematical assistance, including certain notes bearing his initials. Acknowledgment is also due to Professor John B. Clark for encouraging me to com- plete and publish this little book, which was first presented on somewhat the present plan as a paper in his seminar. G. P. Watkins. New York City, May 31, 1914. j CONTENTS INTRODUCTION. Welfare and Utility xix The title of this essay implies a dependence of welfare upon economic conditions — The "variation of utility" a technical description of the subject — What constitutes welfare — Rela- tion of utility to welfare — Neither word is definitely objective or definitely subjective in meaning — The sense in which wel- fare is an economic quantity — That "weKare" connotes sociality more than does "utility" is not an essential difference — The quantitative variation of utility is the connecting link between goods and welfare — There are several species of utility and their variation is complex — The economic aspect of welfare is essential, though not exhaustive — Moral judgment requires economic as well as other knowledge — Scope of following chap- ters — Underlying assumption that men are in general reason- able. CHAPTER I. Utility defined 1 Utility the basic idea of a theory of consumption — The term defined — The abstract term for a relation — The con- cept is quantitative — The term has a collective significance — Specialization of goods obscures auxiliary uses — The discovery of new uses and the refinement of old. The quantitative conception of utility requires a measure — The conceptual measure of utility is contribution to satisfaction — The power to satisfy must be susceptible of generalization — Expectations must be reasonable — Utility is not proportioned to merely marginal satisfaction; instance the good that is, for the consumption of a small private economy, unique — Equat- ing the satisfactions of different individuals — The absence of definite allocation of super-marginal utility explains but does not justify its neglect. CHAPTER n. The Species of Utility 10 The classification of the relatively homogeneous is not impos- sible — Familiar divisions of utility: Positive and negative; marginal, super-marginal and free; direct and indirect — Three- fold relation of goods to satisfaction: (1) independent; (2) de- pendent on other goods; (3) dependent on other persons — Definition of utility proper — Particular utility — Comple- X CONTENTS mentary utility — Dependence of the utility of a good upon other goods not to be taken in its broadest sense — Imputed utility — Transputed utility — Its relation to relative scarcity — Transputed utility diflferent from other non-particular utility — Opposed to utility proper when the latter is on the same level — Adventitious utility — May appear in the complementary relation — The socio-psychical factor — Both transputed and adventitious utility presuppose economic value — Utility classified as processive and existential — Multiple utility — The relations of these species of utility reviewed. CHAPTER III. The Law of Diminishing Utility . . 20 Diminution of utility is not the only type of quantitative variation — What constitutes a supply from this viewpoint — Homogeneity is essential — Diversity and precedence, not the character of the supply, account for the regular diminution of utility — The diminishing rate of diminution — The abrupt ter- mination of the curve (only an apparent exception) due to neglected costs — Possible relation of diminishing utility to general psycho-physical law — But quantity of feeling differs from intensity of sensation — Weber's Law states exactly the presiunptive form of the curve — Description and characteriza- tion of Diagram II, showing the normal curve of regular dimi- nution of utility — It is a rectangular hyperbola, that is, its equation is xy=c — Proof and construction of the ciu-ve — Since initial utility is seldom infinite, the axis of ordinates is usually at the left of the initial point of the supply — The con- stant-outlay curve — Abstract character of the normal law — Actual curves seldom normal, but never straight lines. Diagram I. The apparent form of the curve of diminishing utility when account is taken of such costs as are neglected until marginal utility is small 27 Diagram II. Normal curve of diminishing utility constructed according to the psycho-physical law as a rectangular hyperbola 28 CHAPTER IV. The Scope and Limitations of Di- minishing Utility 40 Bearing of the psychological principle of accommodation upon initial utility — The necessity of immediate consumption, which is presupposed in case of negation of utility through satiation, is not to be regarded as the usual condition — The moderating effect of substitution upon the diminution of utility — The relative and economic (not physical) character of the homogeneity of a supply — All goods are, for certain purposes, reducible to money — Increase of property in general CONTENTS ri may likewise be viewed as subject to diminishing utility — But theoretical diminution may become practical limitation — The oneness of a want no criterion for defining a supply — The case of a single good embodying a series of utilities — Its obscuring efifect on diminishing utility — From a social point of view even such goods as are isolated in actual consumption exhibit regu- lar diminution of utility — The difficulty with discontinuity vanishes in the case of a social curve — The demand curve considered as in part a summation of utility curves — The in- dividual's demand curve has the same form as his utility curve — The summation of rectangular hyperbolae — Meaning of the scales — Qualifications — Distortion resulting from possible differences of slope — "Diminution at a diminishing rate" still holds in any abstract case — Technical meaning of "diminish- ing rate " — Practical value of the conclusion as regards sum- mation — But degree of utility cannot be read back from a so- cial demand curve — The law of diminishing utility as applied to an abstract element of utility embodied in commercially dif- ferent goods — Generally abstract character of the principle. Note on the commensurability of all sorts of satisfaction ... 44 CELAPTER V. Peocessive Utility and Existential Utility 58 Double reference of the term consumption — The destruction of goods incident to consiunption is of fundamental economic importance — But it is in some cases not necessary to enjoy- ment — The uses of such goods tend to be free — The destruc- tion is sometimes intended, hence two sorts of consumption — Processive consiunption and processive utility defined — Existential utility — Objects of eesthetic appreciation have such utility — Objects of existential utility may deteriorate, but not because of their enjoyment — This distinction not entirely parallel with that between perishability and durability — Economically perishable goods a smaller circle within those having processive utility — Physical perishability not incon- sistent with existential enjoyment, but inimical to it — Physical and economic dm-ability combined constitute the condition most favorable to a large amount of existential utility — Destruction of utility has an important but also a variable place in consump- tion. The relation of these distinctions to saving — Saving in con- crete goods, as opposed to pecuniary investment — High possi- ble efficiency, or economy, in a subjective income consisting of existential utility — The relation of ownership to superior cul- tivation of land — The capitalistic ownership of articles of con- sumption is especially bad — Saving in concrete goods is the most fundamental and the most desii-able form of saving. 3di CONTENTS CEL^TER VI. Rate of Consumption m Relation to DzMiNUTioN of Utility . 68 Importance of rate of consumption in relation to diminution of utility — Failure in ordinary illustrations to take account of futiure uses — High perishability, physical even more deci- sively than economic, compels a high rate of diminution — Sub- stitution and preservative measures as means of partial escape — Physically perishable goods ministering to existential wants — Elasticity of demand is only partly a phase of rate of diminu- tion of utility; the expansion of demand often not sufficient to encourage the lowering of price — How high rates of diminution are veiled for the city-dweller. Storage or preservation of goods makes time a factor in the rate of diminution of utility — Economic perishability means a high rate of consumption — But restricted utilization and rapid diminution of utility may be evaded by storing — Postponing the use of part of a supply (distinct from costs of keeping) has thus an effect on diminution of utility — Discounting for futiu-ity of use may be the only reason for diminution — Illustration of future discount — Where consumption is processive and goods are not physically perishable. Utility apart from costs need never become zero — Check from lack of room for storage in the city — Exchange as a factor — Abundance fosters a preference for soUd and durable goods and for existential utilities — Time discount a factor in the diminution of the utility of most goods. The case of existential utility embodied in goods absolutely durable physically, i.e., with a zero rate of consumption — As regards diminishing utility this case not complicated by time discoimt — An analogy — Rate of diminution for such goods not necessarily but probably low — Rates of supply contrasted with amounts supplied once for all — Future discoimt the link between the two sorts of supply — Concrete cases are mixed — Order of preference between different sorts of goods — Risk an independent question. Conclusion: Rate of diminution of utility is affected by rate of objective consumption as well as by need or subjective factors. CHAPTER Vn. The Complementary Relation ... 83 Variety and utility — Refinement in consumption — Diver- sity of use intensifies effectiveness — Partly a contrast effect — Heterogeneity of goods the opportunity for obtaining comple- mentary utility — The man who wants more wants, not only different things, but complements — Increasing utility a possi- ble effect — The joint utility of complements does not conform to the principle of diminishing utility — The Austrians con- sider the complementary relation of productive agents only — Illustration of the complex character of relations of goods to CONTENTS xiii each other — Complementary utUity in household economics — Comfort — Why mere sumptuousness is bad. Heterogeneity practically, if not logically, necessary to the complementary relation — Group utility more than a mere con- trast effect — The complementary relation is of more than merely economic interest. CELAlPTER Vm. The standard of Lite as based upon COMPLEMENTAEY UTILITY 91 The standard of life is a case of the complementary relation — Why, when destroyed, not easily reestabUshed — Economic environment in relation to the standard — The disadvantage of a cheap staple food — High ratio of cost of manufacture to cost of raw materials imf avorable to a high standard — Rela- tively cheap food less desirable — Illustration of the effect of relative costs upon the character of dwellings in coimtry and city — The demand for decencies — A vis a tergo also helps to sus- tain a high standard of life. j Incidence of economic conditions upon the family — Its eco- nomic function now is the care of consumption — The transmit- ting medium for a high standard of life — The dynamic char- acter of this subject. CHAPTER IX. Complementary Utility m Relation TO THE Variation op Utility 98 The importance often attached to goods essential to one's standard of life constitutes an exception to the regular diminu- tion of utility — This supposes income in general is reducible to a common denominator — Diminishing utility holds of par- ticidar utility regardless of heterogeneity of goods — But it need not hold of complementary utility — Typical curve of dimin- ishing utility — Effect of the introduction of complements on the curve of the variation of utility — Physical identification of the last imit or definite assignment of its utility no more essen- tial than for the first or initial unit — Complementary utility cannot be obtained in the largest doses with the earlier units — Illustration by the elements of a dinner — Suppose extreme himger — Suppose moderate hunger and patience — The com- plementary relation between successive goods — Suppose each unit chosen as if the last obtainable — Personal idiosyncracy a comphcation — Complementary utility may be of great impor- tance for the variation of utility without causing increasing utility; illustrative curve — Consumption groupings are elastic and some complementary utility is usually in prospect — In matters psychical 2+2 may, in a sense, sometimes equal 4 but are just as likely to equal 3 (diminishing utility) or 5 (the com- sdv CONTENTS plementary relation) — The somewhat dynamic character of complementary utility — Accidents have obscured the effect of complementary utiUty on variation — Diminishing utility the more objective in its natiu-e — Always underlying — Holds unquaUfiedly for particular utility — Transient character as well as exceptional occurrence of increasing utility — Groups themselves, though like, cannot in practice form a supply — Unlike groups do not constitute separate units but are them- selves grouped — Complementary utility is not amenable to marginal or market conception — Its possibilities not imlim- ited — It is of as great practical importance as are the results of diminishing utility. Diagram III. Possible effect of complementary utility upon the variation of utiUty producing increasing utility 101 Diagram IV. Possible effects of complementary utility upon the variation of utility amounting to less than increasing utiUty . 102 CHAPTER X. Imputation and Transputation of Utility 114 Imputed and transputed utility are somewhat different in relation to complementary utility — Distribution a problem in imputation — Phases of this problem — Conception of impu- tation brought over into consumption — What the term con- notes — Imputation applies to immediate as well as to intermed- iate goods, but the former application b distinctive enough to be given a separate name, transputation — Transputed utility as opposed to utility proper — To merely complementary utility — Transputation as unbalanced attribution of utility — Character of the criterion — Value is primary in transputation as well as in imputation — Character of the variation of utility under the influence of transputation — Two sorts of scarcity — Case of goods deprived of value by transputation — Illustrations of the effects of transputation — Elasticity in relation to it — Inse- curity of high transputed value — Replacement and substitution as limitations upon it. CHAPTER XI. The Transputed Character of the Initial Utility of Necessaries 125 The supposed high degree of initial utility of necessaries — The logic of the valuation of means — The value of life — The value of means of preserving life — Instinctive imputation to necessaries — Character of the utility of increments of income at various stages — Satisfaction comes chiefly from free income — Free income more important than necessaries — NormaUy mere necessaries have little real utility. CONTENTS XV CHAPTER XII. Contrasted Significance of Merely Complementary Utility and Transputed Utility . 131 Contrast between transputed and merely complementary util- ity as regards their relations to welfare — The former a part of complementary utility definitely apportioned to one or more members of a group — Merely complementary utility is super- marginal — Flexibility of groups helps in maintaining this — Replaceability bears no relation to amoimt of complementary utility, but much to that of transputed. Unimputed complementary (super-marginal) utility may indirectly aflFect demand and value — Analogy of the rent of land — Somewhat dynamic character of the influence — Deter- mining power of marginal increments possibly overrated — An article that is unique (whose supply for the purposes of a con- sumer =1), and therefore marginal, will usually have utility in excess of its economic value (marginal utility in the market) — Complementary utility is either imputed and transputed or else super-marginal — A complementary group is usually imique in a particular private economy, and this favors the super-marginal character of its distinctive utility — Economic uniqueness, also, of goods recurrently needed and received. Unimputable utility — Degree of economic value in general, as well as in the case of transputed utility, not a measure of the favorableness of the environment to man, but rather the opposite. CHAPTER Xin. The Nature of Adventitious Util- ity 141 Definition of adventitious utility — Luxury, though related, too vague to be identified with it — How different from other species of utility — No form of curve specially appropriate to it — Its socio-psychical origin does not bar enjoyment by the consumer as if it were due to intrinsic qualities — Psychical parasitism characteristic — Illustration in the value of the diamond — Love of distinction in its economic expression — Relativity of all quantitative judgments the soil of adventitious utility. CHAPTER XrV. SocLAii Phases and the Economic Status of Adventitious Utility 146 Adventitious utility a socio-psychical phenomenon — The class standard in consumption — Middle class sacrifices to "keep up appearances" — The breaking down of class stand- ards — Fashion is essentially conf ormism — Adventitious util- ity ia the cause of changes of fashion — Adventitious exploita- xvi CONTENTS tion of personal services — Objectively immoral character of adventitious consumption — Socio-economic evil — But largely of the nature of personal vice — Value without utility — Mer- cantile exploitation of adventitious motives — Taxation of adventitious utility — Progressive elements in all waste — The variation of adventitious utility protean — The demand is quantitatively insatiable — Yet the net subjective effect for society remains naught. CHAPTER XV. Hosts and Masks of Adventitious Utility 155 Host and parasite — The parasite must usually conceal its true character — Esthetic enjoyment as a mask — Comple- mentary effects in art a cover — The complementary use of the rare — Exaggerated esteem of rare articles — Genuineness improperly associated with rarity — A wrong view of substi- tutes — The "best quality" is relative to the purpose in view — It is not the rare — Perversion of economy — Natiu-al differ- ences versus imitations intended to deceive — The best should be husbanded — Emphasis on "fineness" of quaUty chiefly ad- ventitious — Elegance only an extrinsic association with rarity — Adventitious elements permeate the economic estimation of all things that require much expense or much leisure — The situation into which adventitious utility enters is always mixed — The immorality of the material and exclusive superlative. CHAPTER XVI. Multiple Utility 163 Multiple utility defined — Public service — Analogy of mul- tiple with existential utility — The less strict idea of multiple or collective utility — The inducement to socialize enjoyment — Relation to equality — Public property has reference largely to multiple utiUty — Ability or inability to pay for use not always decisive of economy — Sometimes the state may well change an economic into a free good, e.g., education — Public health — Transportation more clearly of direct pecuniary benefit to the individual — Diu-ability of public works — Monumental public edifices — Unimputable multiple utiUty of the natural environ- ment — Rate of exhaustion of minerals more properly left to private interest — "Conservation" — Public luxury — Appar- ently disproportionate expense of public celebrations and fes- tivals less so by reason of its multiple character — Possible quasi-complementary quality of public luxury — Royalty and nobility as surrogates for the people in consumption — Then not merely selfish — Democratic feeling fatal to this — A richer development of both multiple and individually enjoyed utility in prospect. CONTENTS xvii CHAPTER XVII. The Vakiation of Utility in Re- liATION TO CoNSUMEk's ReNT, INDIVIDUAL AND Social ' 173 Consumer's rent a result of the variation of utility — Why "rent" rather than surplus — Not measurable in money — The possible transputed utUity of an article no part of its con- sumer's rent — Tendency of untransputed complementary util- ity to escape commercial valuation — Unimputable utility also escapes — Definitions of consiuner's rent in its various aspects — Relation to total capacity to enjoy — Danger of imlimited acquisition. Expansion of income in relation to consumer's rent — The in- dividual's progress into civihzation — Significance of the stages as also representative of present social strata — External re- straint upon expenditure wholesome — Place of existential util- ity — The middle situation best — At the top among incomes aTe the vanities of adventitious utihty. The average income of society — Money even less applicable to the measurement of social than of individual consumer's rent — Characteristic wastes and economies — Adventitious utility negative — Multiple utility positive — Abimdance with equal- ity unfavorable to adventitious and favorable to multiple util- ity — Inequality brings the opposite eflFects — Importance for consmnption, and for social economy, of the distribution of wealth — The greater the proportion of medium-sized incomes, the greater are utUity and consumer's rent — Utility of free time — Economics teaches restraint upon individual accumula- tion. CHAPTER XVm. Op Certain Practical Applica- tions 184 The practical application of the foregoing theory a secondary consideration — Diminishing utility as appUed to the accumu- lation of riches too mild a statement of the truth — "The chief enjoyment of riches consists in the parade of riches" — Sumptu- ary laws useless — Philanthropy — Resulting possibility of inverse selection of the richest — Value to society of the inher- itance of property — Possible modification of the institution in relation to the justification of the right of private property — Adventitious ambitions not confined to the rich — Waste of possible utility in a different way at the other end of the social scale — Why this latter situation is less easily disposed of — Futility of computing the economic value of a man — Democ- racy — The golden mean. INTRODUCTION WELFARE AND UTILITY The title of this essay, " Welfare as an Economic Quantity," should give some notion of the interest and importance of its subject. Welfare comprehends or represents all things of reasonable and rightful desire. Its economic foundations, it is true, may seem less interesting. This very fact is pre- sumptive evidence that the dependence of welfare upon economic conditions has not received the attention it de- serves. Welfare, or a large part of welfare, is, in mathemati- cal parlance, a function of the control of economic goods. In other words, the quantity or degree of welfare depends in large measure upon economic goods and upon the use made of them. It is the writer's purpose to contribute something toward an understanding of this quantitative relation between goods and welfare. If it were desirable to make the title also a definition of the subject, it might read, "Kinds of Utility and their Variation." This is technically more accurate, but also less generally intelligible than the other. Such a tech- nical label does not do justice to the human interest of this phase of the study of economic consumption. It is not to the purpose to discuss in this essay the nature and essence of welfare. It suffices to make explicit the as- sumption that welfare is an all-round satisfactory state of being, securely grounded in material and economic as well as other elements. The idea is properly associated with that of a sufficiency of economic goods, though the state is not thus simply constituted. Some will be inclined to beg the question at this point, chiefly those sheltered ones who do not know what it is to do without any necessary XX INTRODUCTION or convenience. Any one who believes that the essence of welfare is a state of mystic contemplation or something else equally ethereal will not care to read what follows. Such a one must first learn something of the elementary relations between life and work with which economics deals. The economic term "utility," rather than the more general and popular word " welfare," is commonly used in the following pages because the former is well established in the terminology of economics and has a definite special meaning. The relation between the two is roughly indi- cated by considering the utility of anything as a part or element of that of which welfare is the whole. Incidentally, the concrete utility is thought of more objectively as in- hering in goods. Welfare is collective and general and there- fore comparatively abstract. At least it is not thought of as limited by persons and conditions. But utility also is general, or generalizable, and only figuratively the "prop- erty" of particular goods. We do speak of the utility of goods and of the welfare of men, but this difference of usage may be merely a matter of viewpoint and emphasis. Welfare, it may be said, is properly a collective term for satisfactory or pleasant states of mind or for such of these as are duly grounded in or accordant with objective conditions, and thus more or less permanent. Since utility is the more objective counterpart of satisfaction, it would seem that welfare is a sum or system, not of utiUties, but of the corresponding satisfactions. In other words, if welfare is subjective and utility objective, the latter cannot be described as a part of the former. In fact, however, welfare is not thought of as a merely psychical state or subjective quantity, nor is utility thoroughly and completely objec- tive. Perhaps the variable and seemingly loose use of these words is justified by the parallelism that obtains, in a more general sense than is technically denoted, between the physical and the psychical. Where capacity is so variable INTRODUCTION xxi and conditional a matter it may not be possible strictly to discriminate between the capacity to satisfy and the result of the manifestation of that capacity. It may be said, even by those who acknowledge the in- terdependence of the two, that welfare is a psychical or subjective quantity and not an economic quantity. Classi- fications emphasizing exclusion, however, are apt to mis- lead. Doubtless welfare is primarily psychical. The phrase "an economic quantity," moreover, should be taken in a restrictive sense, leaving some elements of welfare ad- mittedly not economic. For the rest we may insist that whatever is controlled by economic means and regulated by economic motives is in so far economic. A psychical quantity is often in this sense also an economic quantity. Welfare is most certainly an economic matter, though not exclusively such. But welfare is just as certainly not a commercial matter. That is a much smaller circle within the general field of the economic. Commerce and welfare do not have so direct a connection in practice that we must inevitably connect them in thought, though economics is concerned with both. Welfare may be thought of as either primarily individual or primarily social. That the word tends to connote social- ity is natural. Society is a multitude of individuals the well- being of each of whom is dependent upon that of the others. Utility might also be considered a social phenomenon, but in the study of utility we must devote most attention to the concretely conceived good or collection of goods as over against the equally concretely conceived individual or group of individuals. The social viewpoint is therefore naturally pushed forward to another stage of thought. It is not often that the group of consumers is large enough itself to constitute a society. Multiple utility, to be dis- cussed later, is an important exception. But the economist generally leaves the final stage of social synthesis to others. ." Wealth " and " welfare " are correlated with each other. xxii INTRODUCTION There is a direct, though not a simple, quantitative relation between them. As a supply or collection of goods, that is, wealth, varies in quantity or content, the utility of the goods to their possessor, their potency for welfare, also varies. The changes in the goods may be either quantitative or qualitative. The correlated variation of utility, at least in so far as economics is concerned, will be quantitative only. The necessary foundation for a theory of economic con- sumption would seem to be a law or laws of this quantita- tive variation of utility. We are familiar with one such law, that of diminishing utility. But economists have not paid much attention to this as a phase of economic con- sumption. They have immediately put the principle to ulterior use for the explanation of value and of market transactions; hence they have failed to give any adequate account of the variation of utility as such. It is the chief purpose of this essay to develop a more comprehensive theory.^ There are different kinds of utility and the type of varia- tion is not the same for all. These kinds of utility have scientific interest and social significance apart from the character of their variation. Yet we can scarcely say that anything important about utility is quite unconnected with its quantitative variation. That which is socially signifi- cant in the field of consumption must be so in relation to social economy. "Social economy" here means the good management of the material and other means of satisfac- tion. The clue to good management in consumption lies in the relations between quantity of goods and quantity (or degree) of satisfaction — in just this problem which is to be solved by the formulation and application of the ^ If circumstances favor the writer's further study of economic con- sumption, the related topic next attempted will be personal services. This should include some consideration of the general bearings of the dis- tinction between derivative and original income, as well as a discussion of the character and the social reactions of this class of immediate utili- ties. The scope of the present study is intentionally restricted. INTRODUCTION xxiii principles of the variation of utility. In this direction, for example, lies the answer to the question as to the effect increased concentration of wealth may be expected to have upon utility and welfare. That welfare is exclusively dependent on economic fac- tors is a proposition scarcely to be maintained except in a partisan spirit. But it is possible to be equally dogmatic and a good deal more vague in maintaining the extreme opposition of the "materialistic view" of history and life. The moralists have not often conceded to the economists all that belongs to them in the field of the study of welfare, perhaps because the economists have themselves usually been inclined to claim too little here. The latter have been too anxious to steer clear of moral problems. Though wel- fare is not dependent exclusively on economic factors, it / .^ur-J^ is, let it be repeated, a matter of economics as well as of ethics. That the subject is difficult is no reason why the economists should surrender it entirely to the moralist. The economist should follow his clues wherever they lead. The argument of this essay does not turn aside when it encounters a problem in morals, but, on the other hand, neither does it attempt to pass judgment. It is intended to be merely a contribution to economic science. If it also has bearings on practical problems, so much the better. But such practical bearings are quite incidental to its main purpose. The writer, however, would not appear to hesi- tate to draw any legitimate conclusions that follow from the explanatory principles discussed. He does not suppose that, because his purpose is to explain, and not to justify or to rectify, he can therefore avoid moral issues. But he does not undertake to deal with them in the completeness neces- sary for full moral judgment. To do this it would be neces- sary to take into consideration facts lying beyond the scope of economic study. Economics cannot claim to see all things whole. If ethics comprehends knowledge of root and all, and if it may thus claim to be entitled to judge finally, then xxiv INTRODUCTION its students ought to pay more attention to economics than they have done hitherto. Of the following chapters it is unfortunately true that the earlier ones are the most abstract. They will, therefore, be the least interesting to most readers, and they are also the least significant. Chapters i and ii are almost exclu- sively occupied with the ungrateful task of defining and of qualifying definitions. Chapters iii, iv, and vi deal with diminishing utility. This subject has become, as regards its fundamentals, a commonplace of economic analysis. But these chapters do not dwell upon the commonplace phases of diminishing utility and are indeed developed to a degree of abstraction for which the principle excuse is that they thus serve better as a counterpart for what follows. The conception of the nature of saving which is incidentally developed in chapter v is of some independent interest. The three chapters on complementary utility, that is, chapters vii, viii, and ix, not only correct the ordinary conception of the variation of utility as simply diminishing as the supply of goods increases, but also come fairly close to the concrete facts of life and enjoyment. The next chap- ters, X, XI, and xii, deal with transputation and present the darker aspect of the interdependence of goods upon one another. If the transputation of utility smacks of pessi- mism, the theory of adventitious utility, set forth in chap- ters XIII, XIV, and xv, might well serve as a school of cyni- cism. Chapter xvi deals with an especially social, some would loosely say "socialistic," phase of consumption and enjoyment. Chapter xvii attempts to gather into one whole the results of the different sorts of variation of the sub- jective effectiveness of goods for social welfare. The con- cluding chapter, numbered xviii, draws the moral. But such practical application is merely an incidental function of a scientific essay, though it is of course more interesting than abstract explanation. These practical conclusions are only briefly touched upon, not fully discussed. INTRODUCTION sxv It is the fate of the student of the social sciences to be abstract even where he is least willing to be and where he may perhaps be inclined to ignore the fact that he is so. The writer has preferred to let his abstractness be explicit. One general assumption, however, may well be here dis- posed of once for all. The variation of utility and the wel- fare of the consumer doubtless depend quite as much upon the consumer as upon the goods he consumes. And the consumer is a creature of volition. We therefore have to assume that he is on the average somewhat reasonable in his choices if we are to derive general principles determining the variation of utility and the relation of goods to welfare. We assume, in other words, that the painter's pigments must be "mixed with brains" in order to obtain the effects desired and expected. This essay does not undertake to discuss the quality of men, though it is granted that there is nothing of greater importance in relation to the effective- ness of material as well as of immaterial means of welfare. The argument assumes a tolerably good average level of intelligence and self-control. In thus leaving to one side questions as to the quality and variability of human nature, the part exhibits the character of the whole. Economics is not a comprehensive science of human nature and social relations but an abstract study of a certain class of individ- ual acts and correlated social phenomena. The study of economic consumption will naturally avail itself of the same prerogative of being abstract. WELFARE AS AN ECONOMIC QUANTITY CHAPTER I UTILITY DEFINED Economics is the study of the means of welfare, that is, of goods and services, or of things and processes having utility. Whether utility be considered cause or component of weKare is a question that need not be settled here. An increase of utility normally contributes to welfare. For reasonable beings the more utility there is available, the greater is welfare. The detailed relation between these two variants is the subject-matter of the portion of economics that deals with consumption. The corresponding relation between utility and its physical conditions and causes, similarly considered as variants subject to control, con- stitutes the field of economic production, including the creation of place- and time-utilities as well as element- and form-utilities. Thus viewed, the study of consumption is chiefly concerned with utility and its variation. The first step in such a study is the definition of utility. Utility may be defined as the capacity in greater or less degree to satisfy wants. It is a favorable or desirable re- lation of an external thing or its processes to pleasant or agreeable states of mind. The student of economics does not need to be told that the agreeable and the ornamental possess utility quite as truly as does the "usefuL" Things having utility constitute as miscellaneous a class of impor- tant and trivial objects as can well be conceived. A child's lollipop, a paved public street, a splinter of the "true 2 WELFARE AS AN ECONOMIC QUANTITY cross," a sturdy sunflower, the Koh-i-noor diamond, a glass of lemonade, green and red-flowered wall-paper, a hot bun, a graduation diploma, a waft of perfume, all these yield satisfaction and are included among the things having util- ity. Peculiarities and limitations of this conception of util- ity will appear in the course of our examination of its kinds. The term utility is also used to designate the qualities by reason of the possession of which certain concrete things and acts are constituted goods and services. But utility is predicated of a good or of a service only in relation to human wants and satisfactions, though the latter may be several degrees removed from the primary uses of the object. A good is said to have this or that utility with ref- erence to the wants of some more or less definite person or persons. The relation to the psychical or the subjective is essential to the nature of utility. It might better be said that a good has so much utility. For utility is always thought of quantitatively. There is always present at least an implied or latent quantitative comparison with the utility of other goods. "More" or " less " is the essence of quantitative judgment. This sort of comparison will be made where there can be no absolute and definite determination of quantity. When reference is made to the utility of a good, the speaker may possibly more or less consciously limit his conception to some one particular use, presumably the most appropriate use to which the good may be put. If one use is exclusive of any other and is exhaustive of the good's power to satisfy, such limitation is inevitable. A plate of hot baked beans serves only one purpose and can be used only once. The utility of a chair is different. It may be used by several persons in turn. Its utility is therefore a multiple of the advantages obtained from it by one sitter. But that is not all. Not to speak of the various more or less reclining postures which the body may assume in a chair, it may be found convenient occasionally to use the chair to UTILITY DEFINED 3 stand on in order to get something otherwise out of reach. The family ironing may be done on a board resting more or less securely on the backs of two chairs. It is perhaps en- tirely defensible for some purposes to think of the utility of a chair abstractly as proportionate only to the satisfac- tion to be derived from its primary use for sitting. But the posture for which the chair is built is a merely physical matter. Such a basis would scarcely seem to be the best one for the delimitation of a good's utility as contrasted with the definition of the good itself, the good being merely physical while the utility is a psychical fact. If we pass on to the viewpoint of the less external condition of satisfac- tion, we find the sitting posture itself has a great variety of uses. After eating one may sit in order the better to digest one's dinner. One may sit in order to write conveniently at a table. One may sit in order to rest one's feet and legs by distributing one's weight over a greater surface. To use the chair to increase one's available height is but a step farther away from its physical design. It is thus most natural to think of the utility of a chair in a collective sense, as incorporating the potential benefits of all the various uses to which it may possibly or reasonably be put. Is some single one of the multifarious uses to which a boy's jack- knife is put the correct index of its utility? The use of a needle as a surgical instrument or of a bent pin for fishing may sometimes prove to afford no small contribution to utility. Indeed utility is ordinarily collective. Throughout this essay, unless otherwise indicated, the word is employed in this collective sense. If the consumer can add to or better the conventional and accepted uses of a good, he thereby increases for himself its utility.^ ^ The Austrians think of varied possibilities of use as alternative and exclusive instead of supplementary. Cf . Bohm-Bawerk, Positive Theory of Capital (translation), 1891, book iii, chap. vii. But in the case of most durable goods the uses are actually in the main supplementary to one another, not exclusive. It is onb^ f^^r nrocessive uses (cf . chap, v, below) that the other view holds. 4 WELFARE AS AN ECONOMIC QUANTITY A particular species of utility, thought of as characteris- tic of some one kind of good, is likewise potentially collective, even though the species itself be so narrow as ordinarily to refer to but one use of the good. The rest-giving utility of chairs, the warmth-preserving quality of bed-blankets, the "soporific virtue" of opiates, all seem narrowly limited, yet each is collective of various possible uses. The lounger's "pipe dreams" and the convalescent's recovery of health are not closely related, but the same chair may be the in- strument of both. Though a highly specialized civilization makes us ignorant of many of the possibilities of a tin can, it may be put to many other uses besides that of a water- tight or air-tight package. Even its uses as a mere con- tainer are multifarious. There is a species of utility which, because it is so thoroughly psychical in its nature, is narrow enough to refer to only one kind of use, though one to which almost any sort of good may be put. This distinctive and subjective species is adventitious utility, to the con- sideration of which several of the following chapters are devoted. "A utility" is often spoken of as equivalent to what we have called a use. In this sense the utility of a good is the algebraic sum of its practicable "utilities," in so far as they do not interfere with each other. Where two uses are exclu- sive of each other, as in the case of alcohol to be used either medicinally or for combustion, the preferred alternative use is the one to be included. Although, owing to the tendency to differentiation and specialization in any considerable stock of goods, auxiliary uses are ordinarily of little account, the purchaser never- theless judges a good synthetically, that is, with reference to all the uses to which he may care to put it. The skill of the retailer consists largely in calling to the buyer's atten- tion the auxiliary utilities which the latter is getting, or in concealing auxiliary .disutilities, until the sum of positive UTILITY DEFINED 5 utility appears to the buyer to mount well above the margin, and so the purchase is made. As above remarked, if the consumer can add to or better the conventional and accepted uses of a good, he thereby increases its utility. The discovery of such different and new uses is one of the great progressive factors in consump- tion. It is much more important than the refinement of sensibilities that makes the connoisseur. The latter's con- sciousness of scarcely perceptible differences has the same sort of relation to wholesomeness and progress in consump- tion that the development of athletic contests has to health and eugenesis among the people, the correlation, so far as there is positive correlation, being in both cases quite indirect. Since it is chiefly the quantitative aspect of utility with which we are to deal, we cannot well stop at a qualitative definition. We must have a measure of utility, at least for the purposes of our thought. In the writer's conception, utility is proportioned to satisfaction. The utility of a good or supply is propor- tioned to the sum of satisfaction obtainable from the different uses to which it will be put. This proposition, however, is not to be taken without qualification. There are things which will be accepted in lieu of satisfaction, certain peculiar kinds of utility being thus constituted. From this broader viewpoint, therefore, contribution to satisfaction or what will be accepted in lieu of such contri- bution, is the conceptual measure of utility. The proposition that quantity of utility is equal to quan- tity of satisfaction requires only such qualification as re- sults from the generalized nature of utility.^ Satisfaction that is due to the idiosyncrasy of some one individual is, of course, not a sufficient foundation for a corresponding ^ Substantially the point made by Seligman, article on "Social Ele- ments in the Theory of Value," Quarterly Journal of Economics, vol. xv, 1900-01, p. 321. 6 WELFARE AS AN ECONOMIC QUANTITY quantity of utility. The satisfaction must be susceptible of being experienced by others. Only so could utility be subject-matter for a social science. The generalized character of this satisfaction suggests the solution of another troublesome question. Is utility in pro- portion to experienced or realized satisfaction or to adjudged or expected satisfaction? It is, of course, in individual cases far from being exactly in proportion to either. It is in pro- portion to reasonably expected satisfaction. But such expectation is substantially identical with what has, in general, been experienced, and thus with what will, in gen- eral, be experienced. Barring accidents, and possibly al- lowing for the approximate nature of human notions of quantity, generalizable experience and reasonable ex- pectation are the same. Utility is fundamentally a relation of goods to satisfaction, but, as a quantity, it is also inci- dentally a judgment of that relation. There is to be observed an occasional inclination to confuse utility and subjective value, with a resulting ten- dency to perceive only such utility as is proportioned to marginal satisfaction, that is, the satisfaction afforded by the least esteemed use to which any portion of the supply of a commodity will be put.^ This goes against many ob- ^ The reference is especially to F. A. Fetter, Principles of Economics, p. 26, as follows: "'Total utility' ... if it has any existence, certainly cannot be calculated. The diagram showing the curve of diminishing utility must be understood as representing indicatively at any given mo- ment but one marginal utility, the same for every unit of like goods. The other perpendicular lines are expressed in the conditional mood; they are what the marginal utility would be were the numbers of units different." Contrast this with Jevons, Theory of Political Economy, 2d ed., p. 56; "We may know the degree of utility at any point while ignorant of the total utility, that is, the area of the whole curve. To be able to estimate the total enjoyment of a person would be an interesting thing, but it would not be really so important as to be able to estimate the additions and subtractions to his enjoyment which circumstances occasion." On p. 87, Jevons identifies value in use with total utility. This would not be inconsistent with the employment of the term in a representative sense in relation to a single article, in fact as synonymous with utility. UTILITY DEFINED 7 vious facts. Some articles of consumption — for example, a piece of furniture such as a piano or a cook stove, of which a family ordinarily possesses only one instead of having a supply of several similar units — commonly have utility clearly greater than their value. ^ On the other hand, if, under certain conditions of supply, the least important use to which a good will be put has no appreciable positive utility, but is merely the care-free wasting of it, such a good's marginal utility is nil. But goods without marginal utility are not therefore divested of all utility, else we must deny that such goods, which are free goods by reason of the abundance of their supply having given them a zero mar- ginal utility, are goods.^ But to be a good and to have util- ity are coextensive propositions. Things having marginal utility constitute a less extensive, included class. Similarly the marginal utility pertaining to the individual good thing may easily be much less than the whole utility of the ar- ticle in question. Moreover, if we must confine our thought to marginal utility, or to the utility corresponding to that ^ Wieser, Natural Value, book i, chap, vm, discusses what appears to be a similar case, but a closer examination shows that he is treating of the economic value (not the utility) of goods that are dealt in as indivisible wholes, not those that are such for purposes of consumption only. 2 Menger, Grundsatze der Volksmrtschaftslehre, 1871, p. 83, says: "Die nicht okonomischen Giiter haben demnach nicht nur keinen Tauschwerth, sondern iiberhaupt keinen Werth, und somit auch keinen Gebrauchswerth. . . . Der Tauschwerth sowohl als der Gebrauchswerth zwei dem allgemeinen Begrifle des Werthes subordinirte, also in ihrem Verhaltnisse zu einander coordinirte Begriffe sind, und demnach AUes das, was wir vom Werthe im Allgemeinen sagten, eben sowohl vom Ge- brauchswerthe als vom Tauschwerthe gilt." But it is evident that Gebrauchswerth is not here used as the equivalent of Adam Smith's "value in use." The formally logical phrasing of the passage from Menger is not con- vincing, since it does not reckon with the fact that value is a very broad genus, of which economic value, whether exchange value or subjective economic value, is but a species. To say that water, or that a pail of water just drawn to sprinkle one's flower bed, has no value in use, because one can get water, or another pail of water, for the trouble of turning a faucet, seems to the writer contrary to the sense of the English words and con- trary to common sense. 8 WELFARE AS AN ECONOMIC QUANTITY which results from the least important reasonable use or set of uses for any unit of the available supply, we deprive ourselves of any standard of comparison not varying ar- bitrarily with the pecuniary means of individuals, since available supply varies with purchasing power. The mar- ginal utility of a pair of shoes or of a pound of candy varies from individual to individual as much as does the utility of a dollar. But the utility of shoes as such or of candy does not so greatly vary, because the satisfaction they afford, aside from idiosyncrasies of taste, varies comparatively little. This proposition as to the feeling equality of different individuals requires explanation and delimitation. Doubt- less sensibility, as evidenced by central feeling or affection, as well as with reference to pain stimuli, varies greatly from human individual to human individual. Therefore, it would be well to compare the feeling experiences of two individuals by reference to the relative position or rank of the feelings rather than in terms of measurement units. Probably we should never attempt to assign absolute values to the degrees of feeling of different individuals. But whether this holds or not, it greatly simplifies comparison to assume that the correct method is to equate the zero- mean or point of indifference of one individual's scale with the similar zero-mean of a different individual, other points being compared by way of relative distance from such means. ^ The proposition above enunciated supposes merely that the satisfactions of different individuals should be thus compared according to relative position, that is, as first, second, third, etc., or in a percentile scale.'^ Just wherein and why the higher ranges of the utility curve are peculiar and are intractable to current conceptions is considered in chapter xi, below, on the transputed char- acter of the initial utility of necessaries, and, though less ^ This question comes up again at p. 176. ^ Or by way of the terms of a binomial expansion. ; UTILITY DEFINED 9 directly, also in chapter xiv, on the economic status of adventitious utility. The absence of definite allocation of the utility that is in excess of marginal utility to one or more specific units of the supply causes such utility to be often ignored and sometimes entirely neglected by economists. We shall later see that the utility due to the suitable grouping of articles of consumption is little regarded for the same reason, because this species of utility also is not clearly and certainly the property of one concrete and definite good. But these utilities exist, whether amenable to com- mercial valuation or not. If a particular supply is reduced to a single unit, its utility clearly need not be merely mar- ginal for its possessor. It often is much greater than what corresponds to the price he would have to pay for it. Yet the fact that there are several units can scarcely be sup- posed to destroy whatever is in excess of the marginal ele- ment in the utility. Super-marginal utility remains utility, and is often the most fruitful or effective part of utility.^ ^ Having in view the essential character of the phenomena of utility, one would rightly expect that "efifective" utility would mean utility that is effective for satisfaction. But in his Essentials of Economic Theory, p. 7, Professor Clark makes "effective utility" mean utility that is effective for the determination of economic value. The analogy of "effective demand" explains this. But utility looks to satisfaction, not, as does demand, to the market. But, as is here curiously illustrated, the atten- tion of economists is not easily attracted Ip that direction. CHAPTER II THE SPECIES OF UTILITY The character of utility partakes of both the objective and the subjective. Hence it does not appear at first glance whether it can be subdivided into species. Objects and events that have utility are multifarious. Subjective satisfaction, on the other hand, is of homogeneous sub- stance. It is doubtful if we can at all divide and classify satisfaction as such. But we can deal with sources of satis- faction with reference to psychical effects as well as with reference to physical qualities, and therefore we can divide or classify utility. Though satisfaction is one, relations to it, or the sides from which it can be approached, are many. The same substance may be cut into many different sizes and shapes. There may be several classifications of the same group of things, all quite "natural" or organic in character. Thus utility is susceptible of more than one significant division. Some familiar ones are as follows: — Utility is positive or negative. Negative utility is the tendency to cause detriment or to detract from enjoyment and is usually distinguished as "disutility." Utility is marginal, super-marginal, or free — ideas to which the reader has already been introduced. The first is the utility corresponding to the least important reason- able use or set of uses for a unit good under given conditions of supply. Wants remaining constant, any unit of a given supply has the same degree of marginal utility as any other unit. Some units, though their physical identity cannot be fixed, have more than this degree of utility. The excess is THE SPECIES OF UTILITY ,11 super-marginal utility. If we wish to distinguish other than marginal units of the supply as intra-marginal, then intra-marginal utility would be the utility individually and collectively possessed by these units. The amount or degree of utility possessed by one or more of such units in excess of that of the marginal unit is super-marginal utility. Free utility is the utility of free goods, which are those whose supply is so abundant relatively to wants that their marginal utility is zero. It might be considered a special case of super-marginal utility, that is, the case where marginal utility is zero, but the fact that the one relates to economic and the other to free goods makes it important to have separate and distinct terms. Utility is direct or indirect according to whether the good's capacity to satisfy is ripe and ready or whether the good is appreciated as a means to the creation of other ob- jective conditions of satisfaction rather than for itself.. Coal can directly affect one's enjoyment negatively by soil- ing things, indirectly and positively by being used to create warmth. The utility of the same object may be more indi- rect or less indirect, according to its destined use; the coal, for example, according to whether it is used as domestic fuel or as the source of power for a mill. The same distinc- tion is often indicated by the words immediate and medi- ate or intermediate. These classes of goods are also dis- tinguished as of first order and of higher or remoter orders. ^ An especially important phase of this distinction relates to the possibility of exchange, by way of which a good has an indirect utility corresponding to what it will fetch in ex- change for money or other goods. ^^ The above are of course cross-classifications or sub- ^ Menger, Grundsatze, p. 8. 2 Jevons {Theory of Political Economy, 2d ed., p. 76) would confine "indirect" to this sense and relate "mediate" utility to the stages of the productive process. But it is doubtful if such a distinction can be es- tablished as usage, even as technical usage. ^ 12 WELFARE AS AN ECONOMIC QUANTITY classifications, each of great value for particular purposes. Below axe introduced certain further classifications which are as important as those just mentioned. It will be nec- essary, incidentally, to use and to define certain new terms. It would be well for the reader to bear in mind the fact that the definitions which take up the remainder of this chapter serve chiefly to introduce certain concepts to the understanding, whose significance can be fully appreciated only after reading the chapters to follow. The consumption of a good may be related to the satis- faction of wants in a threefold way. The good may possess quahties which are wanted for themselves. The relation is then simple and direct between the quahties of the good and the wants of its consumers. But the relation may be of a more complicated sort, not adequately accounted for in this manner. The good may be wanted for the sake of conjoint consumption with some other good. So far as this holds, the relation of the good to another good is the critical factor in its utihty and value. Of course the relation to wants continues to be fundamental; but it is overshadowed in the case of the part of the utility that depends on joint use. Still a third relation may dominate choice to the neg- lect of the other two. A good may be bought or consumed merely or chiefly on account of its bearing on the relations of its possessor or consumer to other members of society. The good may be a means of social distinction and may be appreciated for no other reason. Here the relation of the consumer to other men is the crucial point. The relation of such utility to satisfaction is derivative. These three viewpoints suggest the essence of the classi- fication of utility of which most use is made in this essay. Utility 'proper is due to the intrinsic qualities of a good, or group of goods, with reference to its relation, including the quantitative relation, to the satisfaction of human wants- If the good is used by itself, and if its degree of utility is THE SPECIES OF UTILITY 13 not economically dependent upon associated or Joint use with other goods, its utility is altogether 'particular. Par- ticular utility belongs to a good apart from its consump- tion groupings. It is not derived from the group relation. If the utility of a good is in part due to association with other goods in consumption, the utility is in so far com- plementary. Such complementary utility of a particular good is a portion of the utility proper of the complete group to which the good belongs. Complementary utility is sub- ject to the influence of shif tings and rearrangements among consumption goods. Its distribution among the members of the group is also ordinarily indeterminate. But, as merely complementary utiUty, it is at any rate not notice- ably centered upon or monopolized by one or a few mem- bers of the group. These definitions may appear to be open to objection on the ground that they wrongly assume that a thing can have utility independently of its relations to other things. All utility, according to a possible interpretation of the defini- tions, is complementary. For example, the utility of the air or of its oxygen depends on the presence of combustibles in the body, and also the oxygen must be mixed with nitro- gen to dilute it for breathing. Conversely, the utility of food and of all other goods depends on the supply of air for breathing. This objection is perhaps best met on the prac- tical ground that, as a matter of ordinary experience, many such things will be available without care and may be assumed to be available as a matter of course. They need not be sought out or thought of, and their relations to the satisfactions obtainable from other things will not ordi- narily need to receive any consideration. But the writer does not wish definitely to confine the applicability of this classification of utility to technically economic as distin- guished from free goods. Circumstances may be such as to concentrate attention on one member of a group of goods. It may be obtainable n WELFARE AS AN ECONOMIC QUANTITY only on condition of imputing to it more than its propor- tion, possibly all, of the non-particular utility of the group in which it is to be used. This case may be distinguished as transputing utihty from the less regarded to the fa- vored one among the complements. In the later years of the First French Empire the utility and value of gunpow- der was mainly imputed to saltpeter because, with foreign supplies cut off, this ingredient was especially difficult to get. Transputed utility is due to a relation to other goods such that their full use and enjoyment is felt to be practi- cally so thoroughly dependent upon the control of the good in question that its utility is exalted and theirs de- pressed. Utility, or more utility, is transputed to the rarer complement in amount greater than would be attributed to it because of its other uses or merely for its own quali- ties. Instead of being shared proportionately, the comple- mentary utility of the group (a part of the utihty proper of the group) is chiefly or exclusively credited to one of its members. Transputation is a sort of monopolization of complementary utility, its abstraction from other comple- ments and concentration on one. "Transputation" con- veys the idea of such a carrying over or transference of attributed utility.^ The term "transputed" itself suggests the close relation of the conception to that of imputation,^ so familiar to stu- dents of Austrian theory. Transputation is a special case of imputation. Though properly more general, the idea of imputation, as it has in fact been used and may well con- tinue to be used, does not look beyond value to the utility that is its foundation, while transputation refers chiefly to utihty and consumption. The Austrian theory of impu- tation assumes that utihty has no practical significance apart from value, while the conception of transputation ^ The term has been adopted, after much unavailing effort to find a better one, at the suggestion of Professor Johnson. ^ Used by Smart to translate the German Zurechnung. THE SPECIES OF UTILITY 15 recognizes the coordinate contribution of various members to a group-eflfect, and considers the concentration of group utility and value exceptional and its equitable distribu- tion normal. All complementary or non-particular value is imputed to group members, while transputed utility will seldom thus absorb all non-particular utility and may not be distinguishable at all. The one rejects while the other accepts the idea that the concentration of value by imputation does prejudice to other coordinate elements involved, though this difference may be due entirely to the difference between intermediate goods, so conspicuous in Austrian theory, and the immediate utiHty affected by transputation. Imputation relates to the attribution of value in production and distribution. Transputation is a result of the complementary relation in its bearings on economic consumption. Some further attention is given to the terminological question in a later chapter.^ Transputed utility is a result of the complementary relation plus relative scarcity of one or more of the com- plements. This relative scarcity is a matter of the quan- titative relations between the supplies of the different goods involved, and is to be distinguished from that scarcity which is the basis of marginal utility, the latter sort of scarcity being a matter of the quantitative relation between supply and recognized need. Non-particular utility proper is thus divided into merely complementary utility, or untransputed complementary utility, on the one hand, and transputed utility on the other. When the non-particular utility is equitably at- tributed to each member of the group, it is merely com- plementary. When one complement by force of circum- stances gets more than its share, the non-particular utility is transputed in whole or in part. Utihty proper includes ordinary complementary along with particular utiHty, but transputed utility relates to a 1 Chap. X, footnote, p. 116. 16 WELFAEE AS AN ECONOMIC QUANTITY different set of circumstances or a further removed point of view. The latter may be founded upon the larger comple- mentary relation between all the goods or experiences of a life. These are not subject to individual control or direc- tion, and therefore not of practical economic interest. Un- transputed complementary utility, on the other hand, is chiefly of significance for the smaller groupings of daily practice. The larger scope of the relation is not ordinarily given attention or else is problematic. The group within which utility is transputed is often more extensive than the particular goods occupying the attention, as in the case of the occasional excessive utility of necessaries dis- cussed in a later chapter.^ In order that there may be transputed utility, it is true, there must be some group re- lation further on — some group the utility proper of which is the ultimate ground for transputation. But the connec- tion may be effective through instinct and need not be the subject of conscious and rational economic judgment. The classification of utility as either transputed or else proper applies in strictness only for coordinate goods, the proper utility in question having nothing to do with that more or less indefinite relation of dependence which is the basis of the transputed utility. The transputed utiUty of a good is not to be set over against the proper utility of the group to which the same good belongs, but over against that of other members of the group, the utility of the group as a whole being on a different level. From the standpoint of terminology it might be preferable to oppose transputed and particular utility but for the fact that transputed utility need not absorb all the non-particular utility in the group, and because of the larger groups from which transputed utility may be derived. Particular and complementary utility, proper and transputed utility, have different limits and different division lines, except that all are contained within the limits of the utility proper of some ^ See Chap. xi. THE SPECIES OF UTILITY 17 group. The complementary relation and the utility due to it are the basis of imputation and transputation. But complementary utility is usually super-marginal and often free, while transputed utility is always economic value, and follows laws of value, and not merely, or even principally, those of utihty as such. But we must postpone further treatment of these rather complicated relations to later chapters. Utility may be classified on still another basis as either adventitious or non-adventitious. The writer can find no better term for the latter than utility proper. Adventitious utility is not due to the intrinsic qualities of the object nor to its complementary relation to other goods, but to a conventional social significance, in the view of the possessor and others, attaching to the possession and use of certain goods. Adventitious utility is due to relations between persons, and finds its expression, rather than its habitat, in the valuation and use of goods. This social sig- nificance of expenditure and consumption upon which adventitious utility is founded is not analyzed and thought out, or even thought of at all, by those who are active in its exploitation. It is conventional in nature and might be designated "conventional" utility but for the too general use and too broad implications of the word. Reflective analysis on the part of the consumer would usually be fatal to adventitious utility. Adventitious utility may also be complementary or transputed. But the complementary relation here reveals nothing new. Transputation, moreover, is unimportant in the field of adventitious utility, since the psychical charac- ter of the latter is very simple and at the same time, in its particular external expression, very fragile. Hence it cannot bear the strain of complex transputation, which is likely to initiate rational analysis and questioning. It is in connection with adventitious utility that the social or socio-psychical factor in consumption is especially 18 WELFARE AS AN ECONOMIC QUANTITY prominent. The material for a comprehensive analysis of utility, therefore, or for a study of its variation, could not be supplied by the experience of a Robinson Crusoe. The adequate study of consumption is a task of the social sciences. Neither transputed nor adventitious utility can be pos- sessed by free goods. Both are dependent upon the limita- tion of supply which creates economic value. Another classification of utility is based upon the reac- tion of use and enjoyment upon a good's power to satisfy. If the furnishing of the satisfaction depends upon processes in the good which destroy its utility, that utility may be distinguished as processive in character. If the mere exist- ence and presence or the spatial relations of a good give satisfaction without involving impairment of its utiUty, the utility may be called existential. By reason of the processes whose occurrence or absence is in question, the good becomes or tends to become a different kind of thing, that is, not a good or less a good. In production the processes run the other way. In neither case can their direction be misunderstood. The importance of the distinction between these two classes of utility for econ- omy in consumption is evident. There is another sort of utility, somewhat analogous to existential utility. The latter affords enjoyment to an individual many times in succession without any loss of its power. Certain goods, largely identical with those possess- ing existential utility, and certain services may, without detriment to their utiHty, be enjoyed simultaneously by many consumers, instead of exclusively by one individual at a time. This is the case of multiple utility. We may briefly summarize as follows the relations between the various species of utility discussed. To be distinguished from utility proper is adventitious utility, the former being based on the relation of the quaUties of goods to men, the latter on the qualities of men and the relations THE SPECIES OF UTILITY 19 between them. In contrast with utility proper from an- other point of view is transputed utility. Complementary utility as such is a species of utility proper. From the point of view of the complementary relation, utility proper may be divided into particular and complementary utiUty. The complementary relation is also the basis of trans- putation, but transputed utility is different from merely complementary utility in being value as well as utility and in being more or less monopolistic. Existential and processive utility are the terms of an independent cross- classification, significant in relation to the reaction of con- sumers upon goods. CHAPTER III THE LAW OF DIMINISHING UTILITY It is too often assumed that the diminution of utility — sometimes without regard to regularity in the rate, some- times with the impHcation that diminution proceeds at a diminishing rate ^ — is the one and only law of the varia- tion of utility. The writer does not deny the importance of this principle or even its primacy. He does beUeve that economists have in general been in too much haste to state the "conclusion of the whole matter" and so have left out of account everything but the final stage of the variation of utility. They have assumed that the principle of diminu- tion was universal and have not inquired into conditions. But they have at least made it unnecessary to argue and illustrate the fact of diminution of utility. We shall there- fore consider the principle first with reference to the differ- ences between it and the conditions it presupposes on the one hand, and the conditions and principles of other kinds of variation of utility on the other. A suggestion of the principal condition to the diminution of utility is contained in the very word "supply." The utility — of course the marginal utility, since the uses of units well within the margin are ordinarily not affected by extension of the supply — of a unit of a good whose supply is changing diminishes as the supply increases, and in- creases as the supply diminishes. But can we, in conform- ity with the sense of this proposition, speak of a supply of such a miscellaneous class of commodities as, for example, food or clothing? If an inhabitant of a northerly climate has a supply of clothing consisting of one coat, what will be the diminution of utility accompanying his acquisition of another article of clothing, say a pair of trousers? Or ^ For the position of various economists as regards this point, see the footnote on p. 24, below. THE LAW OF DIMINISHING UTILITY 21 suppose he receives successively hat, coat, trousers, and shoes, is the principle in operation that of diminishing utility? Certainly that principle is somewhat obscured, and if so the reason must be because the conditions for its operation are not favorable. That is to say, contrary fac- tors with their different principles are at work. How these different principles work is described in later chapters to which the present discussion is a foil. The problem suggested by the above illustration may be met by sharply defining the term supply. The units of a supply must be like one another. They must be so much alike as to be interchangeable, sometimes perhaps indis- tinguishable. The principle of diminishing utility is oper- ative without qualification only in the case of homogeneous goods. To avoid ambiguity it might be well to use the phrase homogeneous supply when discussing diminishing utility. But "a supply" is usually intended to mean just that. Since by hypothesis the character of the good does not change, the reason why the utility of successive units of a homogeneous supply of goods diminishes must be sought in the nature of man. The reason is the diversity, we might say the versatility, of human wants. There is a best use to which a particular kind of good may be put and a single available unit will be put to that use. Both reason and instinct require the application of a good to the satisfaction of the strongest desires or elements of desire first. Added units will be successively applied to uses for which they are less needed or less well adapted. The most important class of uses of wood is for the parts of furniture and imple- ments. Next, ranks its use for the floors and interior fin- ish of houses. In America lumber has until recently been so cheap that, except under special conditions, houses have usually been constructed entirely of wood above the foun- dations. Where wood is the available fuel this use ranks next. Buildings to house cattle are of less direct human 22 WELFARE AS AN ECONOMIC QUANTITY interest. Whether crops also are to be completely housed when harvested is not of so decisive importance as to make barns generally adequate to this use, even where lumber is very cheap. The burning of timber merely to make potash is no longer a recognized industry. The distillation of wood to obtain alcohol is a low grade of use applicable only to what are in effect wood residuals. Of course there are within each of these uses or classes of uses all gradations in the importance of individual uses to which particular articles are put. Human ingenuity will continue to find uses for a large supply of material or a large number of articles of quite the same kind, but uses in which the units of the supply are, under static conditions, less and less effective. Subjectively considered, it might be questioned whether two articles are ever put to quite identical uses. The first and the second pieces of bread do not satisfy exactly the same kind of want; they do not produce exactly the same sort of satisfaction in a hungry man. It is hardly possible that two meals, though they be objectively identical in every particular, be quite the same to the consumer. It is only because we discriminate desires by their objects that we are likely to think of a particular kind of good as satis- fying always the same sort of want. The utility of a sup- ply of goods is in its very nature compoimded of many uses. Want and demand are always composite, varying, kalei- doscopic. Owing to the considerable degree of interchangeability of goods and to the diversity of their groupings in consump- tion, the apphcation of later units of a supply is likely to be to uses or desires objectively distinguished as of a different kind from those to which earlier units are applied. Some com may be used for hominy pudding and for johnnycake. Some will feed the chickens and thus supply eggs and poultry for the table. Some is reserved for seed. Some becomes proprietary breakfast food. Much goes to the THE LAW OF DIMINISHING UTILITY 23 production of pork and much is fermented and distilled to become whiskey. Some becomes the starch in our collars and some makes glucose and syrup and candy of low grade. This diversity of wants and uses, including in increas- ing proportion new kinds of uses and future uses, to which an increasing supply of goods is appropriated, becomes greater as the good becomes more easily obtainable. It is owing to this fact that the diminution of utility proceeds at a diminishing rate. The curve of utility, or of demand, that is, demand for consumption as distinguished from demand for exchange, is regularly bent more and more away from the vertical. It is concave. This concave character is a result of the stimulus which the increase of means imparts to the expansion of wants. The proposition that the diminution of utility pro- ceeds at a diminishing rate is one of those very general facts that would be recognized as common sense if it could only be stated in unmathematical terms. But exact language, and the abstractness of conception that is its necessary condition, is repellant. The point is simply that the diversification of uses of an increasingly abundant supply will ordinarily or regularly be increasingly rapid as the supply of an article, and the ease with which it is ob- tained, increases. The number of distinguishable uses will therefore increase at a greater rate than in proportion to the increase in the amount of the supply. If apples at $3 a bushel are reserved for a single use (or a single dozen uses), but will have two uses at $2, they will not have merely three at $1, or four on becoming free goods, but certaialy more than in the proportion indicated. Every downward step in difficulty of attainment that is of equal absolute importance will be increasingly effective in pro- moting the development and application of new uses. On general grounds, that is, because of the fundamental attribute of human nature according to which attention and thought run in terms of relative quantities, equal 24 WELFARE AS AN ECONOMIC QUANTITY relative steps are much more likely to be of equal effec- tiveness. The law of diminishing utility exactly expressed im- plies, not mere diminution of utility as supply increases, but diminution at a diminishing rate. Some economists ac- cept this implication. Others, by their manner of drawing the curve or otherwise, show that they have in mind only the less definite concept.^ By the law of diminishing utility, ^ Marshall's statement is: "The one universal rule to which the de- mand curve conforms is that it is inclined negatively throughout the whole of its length" {Principles of Economics, footnote on p. 160 of the 1st edition; p. 99 of the 5th edition). In order to simplify things we may take this as referring to the demand curve of an individual, which is in the form the same as his utility ciu"ve. If the word supply may sometimes be taken in a loose enough sense to include goods bearing in some degree a complementary relation to one another, the statement quoted claims too much. Cf . chapter ix, below. If it be taken to refer to particu- lar utility only, it explicitly avoids being as definite as it might be. But Marshall's utility curves are drawn as continuously concave. Jevons's practice ( Theory of Political Economy) also conforms to the as- sumption of diminution at a diminishing rate. The same, on cursory exami- nation, appears to be true of Walras (ElSments d'6conomie politique pure, 1874). The Austrians do notemploy graphic methods of exposition, hence it is not easy to say what course they would ascribe to the variation curve, if they were interested in it. The greater number of economists are, for the same reason, not specific on this point. On the other hand. Professor Patten, as cited on p. 39, below, illus- trates the possibilities of an entirely arbitrary[handling of the form of the curve. Professor Fetter (Principles of Economics, 1904, p. 24) makes the curve convex at its lower portion. There are other cases where the curve is allowed to cut the base line, but this is of little importance if its con- cavity is maintained. A conspicuous but rather ambiguous case is that of Professor John B. Clark. His utility curves are in general concave throughout their length. But on p. 222 of his Distribution of Wealth, the horizontal summation of convex curves is made to yield a concave curve. On p. 225 there is a simi- lar convex curve. This may be explained as due to his attempt to deal with utilities that are absolutely alike. He says: "Of a series of utilities that are exactly alike, the first is measured by a positive quantity and all fol- lowing ones by negative quantities" (pp. 231-33). The writer's position, as explained in chapter iv, is that the homogeneity postulated for dimin- ishing utility is entirely an affair of goods and not of wants, and also that time of consumption should not be thought of as restricted to the present. But it is of some interest to attempt to trace the diminishing utility of a quality, instead of a good. The quality, however, should be objectively definable. ' THE LAW OF DIMINISHING UTILITY 25 or of normal diminishing utility, — if there is occasion for exactness of expression, — the writer always means dimin- ishing utility at a diminishing rate. We shall shortly see that the conception can be made even more exact and mathematical — and at the same time, of course, more abstract and restricted as to its practical application. In any case the comprehensive conception of the variation of utility must provide for other principles of variation and for other forms of the curve of variation. The apparently convex form of the curve of diminishing utility at its lower end, or its more rapid decline and abrupt termination, is not contradictory to the principle of decline at a diminishing rate. The perishable character of certain utilities, together with the limited capacity of correspond- ing appetites, produces the phenomena of saturation for the consumption of certain goods, for example, ice cream, if time is limited. This fact is in part responsible for a too broad generalization with regard to the lower end of the curve. But the appearance of an abrupt drop may be due also to the influence of indirect costs, accompanied, of course, by the exhaustion of such possibilities of out-sub- stitution — that is, devotion of some units of the supply to purposes ordinarily served by entirely different goods — as will cover these indirect costs. When price becomes almost negligibly small, other elements of cost that are ordinarily themselves negligible, such as the cost of going to the place of sale, of calculation of utility, of bargaining, of devising new uses, of caring for a supply for the future, etc., out- weigh the marginal utilities which have become very small, and put an end to demand. "Enough is enough." At least enough causes inertness. But such an end to the expansion of use does not affect the standing of the general principle of diminishing utility. Economists who represent the curve expressing this sort of variation of utility as normally con- vex at any part of its length are thus open to criticism. Allowing the curve ever to cut the base line is also ob- 26 WELFAEE AS AN ECONOMIC QUANTITY jectionable, though defensible on grounds of conven- ience. The effect of neglected costs upon the curve of diminish- ing utility is shown in Diagram I. It is possible to give a more subjective or psychological explanation of the phenomena of diminishing utility. It may be said to be a corollary of Weber's and Fechner's law of psycho-physical relations, according to which, in order that the psychical intensity of a sensation may increase at a constant arithmetical rate, the physical intensity of the corresponding stimulus must increase at a geometrical rate. It is to be noted that diminishing utility relates, not to the intensity of sensation, but to its extent, or to the exten- sion of ideas and of feelings of satisfaction accompanying ideas, especially ideas of possession. The supply, moreover, whose utility is felt by anticipation, and judged, need not be in sight. It need only be contemplated quantitatively, as in the case of purchase from a distant store. It is not a matter of course that Weber's Law applies to states so remote from the intensity of sensation following directly upon peripheral stimulation. Nevertheless, the generality of the psycho-physical law is so great that the suggestion of a connection with diminishing utility is not to be scouted. It is to be observed that, if we can accept the psycho- physical formula, we have thus not merely further support for the principle that utility diminishes at a diminishing rate, but we know the exact form of the normal curve of diminution. The graphic representation of the relation between the variation of satisfaction or utility and that of the corre- sponding physical quantity as expressed by Weber's Law requires some use of mathematics. We want a curve show- ing the derivative variation of utility supposing supply to increase by regular increments. Diagram II is designed to Isi^iGR^m. I <:^ Me aj^^mre/z^ j^rm; ^^^e c^zr^ cosis asiare zzee/ec^ez^ zz/z^z^ //zargz/zzz/ zz^zlz^z/zs:'j/rzzzll A y \ > \ k \ \ \ S N B ^ 5" G t E u — ■ . F ^ ^ C ~" " 7 r /*■ r y -r 7 r / Ik ^/^Z/'^l^^^c/^'i?/^ afj^^cA Pv etc., is xy = c, which is the equation of the rectangular hyperbola. ^ L. H. L. ■ THE LAW OF DIMINISHING UTILITY 35 (3) (4) (5) (6) .(7) We will solve equations (l) and (2) for d and c. Removing parentheses of (l) 64 — S V "S. x^ ^ 8 / \^ ^ — . ,__ / V ■^ < -^ D^ ^ "■ - >» a A Rr rea^^Zar^ azn/e a-^^Z/Mr/izSyizjz^ zztzZzZz/ IT Cizrz/'e afcam/jZe/zze/zZa/^z/ zz^zZzZi/fei&e/i c^^r^re se/ji^rateZi/ ^7^^7^^:ea ^fZdTyi: rase/:Z co/^z>Zs';^£'/zfarz/ z^Ii^Zii' B D i!p/r<7r<:^ Z^sr/z resziZZZ/zff fya/K a<^i^2/^'? ca/!'z37eme7itczr^ Za pi^rZzcaZar izZZZZZ^ __ vnrt/ h \ \ \ \ \ \ s I D N \ P> \ ^ ^ — -■ _C a /\BC- DEF- /vaz cfe/'/(;c^!a/z r/rix:c ^i'pitra/ A c ^^/^ci J i'jiti farj^a&a/t afa cor,'^ixeffze^i:i^^/ « •■^ " • ' " " \ \ \ \ \ ^ ._^ E F N V, , ' V, ,^ "■ "~ — .^ B "■■ •"- — — - — . C QCF- can^e af d^riaha/z ^A^a/n/z^ zas E F //"(S^/za a/m/7s^ /^^r/x^/z^a^. VARIATION OF COMPLEMENTARY UTILITY 103 variation of utility working out this way. The practical significance of such "increasing utihty" is evident. It might be questioned whether the complementary utility belongs to the units to which it is credited. But the increase in the number of goods will none the less mean such a variation in the quantity of utility successively added as is indicated. The apportionment of the utility to the sepa- rate units, as their property, is not essential. It is just as easy, or just as impossible, to pick the "first" unit out of a completed supply as it is the economically "last" or mar- ginal unit. The existence of complementary utility is no more dependent upon its inhering in a particular physical unit than is the existence of the initial or of the marginal utility. As to whether complementary utility is fully taken into account, as particular utility is, in the order of acquisition and consumption, a small portion of it may be so dealt with, that is, so far as a particular good, let us say the seventh of a group of ten, may be also effective to some extent as completing a provisional group of seven. But most of the complementary utility brought by the tenth unit is due, not to its being the particular good which it is, but to its being the tenth of a group of ten. Any preceding unit will naturally have more particular utility, but it is the last to be acquired that brings most complementary utility, because it completes the group, the other nine being already there. Even as regards the seventh unit mentioned above, whatever complementary utility it brings is brought because it is the seventh and last unit of the provisional group of seven. The complementary utility thus made available, while it gives number seven prece- dence over numbers eight and nine on the ground of degree of utility, may also mean such a superiority over number six that its coming after that number means increasing utility. It would not be diflScult to find economists who would lot WMI.FAitE AS AN ECONOMIC (illAN'n'I'Y allinii as u priiu'iplo wllliout. fpialiflciilion llial Tood is ,siil)j<'('l It) IIk' laAV <>r (liiiiliiisliiii^ ulilily. On |)iilliiig this I)r<)]K)sili<>ii into the concrete tlic economist will most likely eoiifinc llie illiistnilion to one sort of food, say bread. Then lie will }j;('iiolal.oes, salt, snhul, sauce, soup, sugar, and water. In onh'r lo keep the jiarlicular ulilily of each unit separale in Ihoughl, suj)j)ose nlso that the reen each reciuest. The articles being chosen by a hungry man wilh r(>l\>r- ence lo I heir parlicidar ulilily and c«)iis(imed as soon as «>blaincd, Ihe order might be meal, bread, waler, I'lc. 'I'he man wouM s water, lie trrlainly Wi>uld not ask VARIyVTION Ol-^ COMl'LEMENTARY UTILITY lor. first for the articles from which he expected the greatest sat- isfaction. Furthermore, he would ])robal)ly not care to con- snnic tlie son]) until he liad salt, bread, juid hntter, to ^o with it. (^>n(iiK:d to I, lie ahovc^-nuviitioiicd consliliKMil.M of a, modest dinner, he would next choose meat, but would not care to e.it nuieh of it nniil he obtained its eoni])lii]> Salt IJroad Butter Mc'ut Potatoes Vc^'ctiihlo aaljid Mc-U, sauce ])<'.s,sort CoU'eo Siig.-ir ]Sliit,s But the full importance of complementary ulility is not measnnnl by the (^llVet, of tlu; strictly ttontcniponuicous combinations that could be made. Sonj) com(\s before; meat because tliat is the pro])er order in which to get the Ixnavfit of th<; complementary ulJIily that results from th<'ir being grouped. The entire meal, with its setting, is u, single; group of com])lcraentary goods. The satisfjurtion obtained from il; lias little or nothing t.o do with diminishing utilily. 'i'he reason is that the utility of the meal is chiefly comj)lemen- tary in its nature. Tli<> illustration is ojx'u to criticism in oik; ]):i,rllenlji,r. It might be claimed that the consumer should be coinpelled to choose each unit as if it were the last in order that he might hav<; n motive io take; riceount of nil possibh; ]);trti(;u- lar utility at each step and would not, for (rxjunph;, :i,se(!nd from soup to meat. This situation, would limit thx; ])OMsi- billty of o])taining compl►;:>' •'■A\'f