not a usual relation or a vague degree of benefit sometimes present and sometimes absent, but it refers to a particular thing, person, time, and condition. Value is in the closest relation with wants, and in this narrow sense depends on the individual's estimate. From the meeting and comparison of the estimates of individuals, arise market values or prices, which are the central object of study in economics.
CHAPTER 4
THE NATURE OF DEMAND
§ I. THE COMPARISON OF GOODS IN MAN'S THOUGHT
Wants and goods must be constantly adjusted
1. As wants differ in kind and degree, so goods differ in their power to gratify wants. This general and simple statement unites the leading thoughts of the two chapters preceding. Confirmation of its truth may be found in observation and experience. The purpose of this chapter is to show how, starting from the general nature of wants and the nature of goods, we can arrive at an explanation of the exchange of goods. Recognizing the simple but fundamental fact stated at the opening of this paragraph, an exchange may be seen to be a rational and a logical result when men are living together in society.
Ripe and unripe goods
2. Immediately enjoyable goods are the first objective things whose value is to be explained. Goods come into relation with wants in a multitude of ways. Some things will not gratify a want until after the lapse of a long time, as ice cut in December and stored for summer use. Other things will never themselves directly gratify a want, but will be of help in getting things that do; such are the young fruit trees planted in the orchard, and the hammer that will be used to drive nails in a house that will shelter men. Still other things are gratifying wants at this moment, or are ready for use and will be used up in a very short time; examples of such are the food on the table and in the pantry, and the cigar in the pocket. All these things are called goods, because of their beneficial relation to man's desires, but the relation is very immediate in some cases, very remote in others. The value of all goods is to be explained, but the explanation will be more or less complex according to the directness or indirectness of their relation with wants. As it is the power of goods to gratify wants that alone causes value to be attributed to them, those goods which are ripest, which are ready to gratify wants, are nearest to the source of an explanation. The value of unripe enjoyments must be traced to some expected gratification as its cause or basis. In order to attack the difficulties one by one we will, therefore, in the following discussion, deal first with this class of ripe, consumable goods, as food, personal services, enjoyments of any sort that are immediately available. The explanation of these cases of value must precede that of cases in which the relation to wants is less obvious and direct.
The law of diminishing utility
3. As the amount of any good increases, after a certain point the gratification that the added portions afford decreases. This is called the law of the diminishing utility of goods or of the decreasing gratification afforded by goods. The reason for the truth of this proposition is found in the very nature of man and his nervous organization. Any stimulus to the nerves, however pleasant at first, becomes painful when long continued or increased unduly. The trumpet too distant at first for the ear to distinguish its notes, may swell to pleasing tones as it approaches, until at length its volume and its din may become absolutely painful. If we were to express the degree of gratification by a curve, we should see the curve rising gradually to a maximum, and then falling somewhat suddenly and becoming a negative quantity, when pain, not pleasure, resulted. The same change could be illustrated by any sensation or by any of men's activities.
The proposition must be understood as applying to the gratification resulting from each added portion of the sensation. There is a maximum point in the gratification afforded by any nerve-stimulus. A man coming in from the winter's storm and holding out his hands before the fire, feels an intense pleasure in the grateful warmth; a few moments later, the same heat becomes unpleasant. In winter we wish for a moderation of the temperature; on the sultry days of summer, we think of a cool breeze as the most to be desired of all things. Whether the temperature rises or falls, there is a point beyond which the change is no longer an addition to, but a subtraction from, pleasure. A man, however hungry at first, may be made miserable if forced to eat beyond his capacity. Each added portion of the good consumed contributes to the gratification up to a certain point. The sum of these pleasurable sensations may be called the total gratification, which finally reaches satisfaction or fullness. Then begins what may be called in algebraic phrase a "negative gratification" which, if it becomes large enough, will make the total gratification a negative quantity. Each added portion, dose or increment beyond a certain point reduces thus the welfare of the user. One may have too much of a good thing.
The marginal utility
4. Marginal utility is the gratification afforded by the added portion of the good. The marginal dose, increment, or portion is that which may be logically considered as coming last in the case of any good or group of goods divisible into small parts. In considering the strict theory of the case, in order to get at the principle involved, the doses may be spoken of as infinitesimally small. The marginal utility expresses the importance that men attach to one unit of this kind of goods under the particular circumstances at the moment existing, and not under certain conceivable conditions which do not in fact exist or need to be taken into account by the persons affected. The marginal unit of a homogeneous supply cannot be considered to have a greater utility than any other unit at the moment, and therefore the product of the marginal utility by the number of units, gives the total measure of importance of the supply then and there, and this is the value.
The value of goods, as has been indicated, is the measure of the dependence felt by men on a portion of the outer world, as the condition of gratifying their wants. From the very nature of wants, which reside in feelings, a dependence that is not felt, a relation between things and gratification that is not recognized, can have no influence on value. Now, it is at this margin of supply that dependence is felt. Men do not concern themselves about that which they have in superfluity—unless, indeed, the excess causes them some discomfort. It is well that they do not, for a wise direction of effort can only take place when men think mainly of their need of things that they want, and want most, and direct their efforts toward securing them.
From marginal utility to value
The diminishing utility of successive portions (doses or increments, as they are called) may be represented by a curve of utility.
The diagram is constructed on the hypothesis that a tenth unit of a certain good would have a utility expressed as 36; a fifteenth unit of 30, etc., and that the value of the whole supply is estimated according to these marginal units. Of course if the conditions were that "all or none" was to be taken, the result would be different.
| Unit of Supply | Marginal Utility | Value of Whole Supply |
| 10 | 36 | 360 |
| 15 |
