Character istics of Human Wants. The Law of ing Utility. CHAPTER V CONSUMPTION OF WEALTH § 38. As one of the main divisions of economics, consumption treats of the relations between wants and the means to their gratification, goods. The characteristics of wants first demand attention. It is a familiar fact of human experience that wants are indefinitely numerous. Every day, in the consciousness of every normal person, many wants for commodities and services are felt which must of necessity go ungratified. Upon this simple fact is based the law that the consuming power of a community is indefinitely great. A second familiar characteristic of wants is that they are of very different degrees of intensity. This is realized as soon as one tries to arrange all of the wants of which he is conscious in a scale according to their importance. Such an endeavor reveals also the difficulty of measuring wants and the complexity of those which direct daily life. Corresponding to every want that comes within the scope of economics, is a utility or combination of utilities capable of gratifying it. The intensities of wants determine degrees of utility and thus, as is shown later, have great influence in fixing the values of the economic goods in which utilities are embodied. § 39. Variable as they are in intensity, all wants are subject to a law of gradual diminution and final satiety as consumption is continued. This may be illustrated by reference to food. A healthy American boy, given a breakfast of unlimited buckwheat cakes, attacks the first plateful with great avidity. His eagerness is reduced by each additional plateful, until his hunger is satisfied and he must reluctantly confess that he has had enough. This might be accounted for by the fact that the human stomach can only hold a certain amount of food at one time, but the same principle applies to all our wants. PRESENT AND FUTURE GOODS 71 As our capacity to enjoy food is limited, so is our capacity to enjoy clothes. A normal person feels intensely the need for one respectable suit of clothes, pair of shoes, etc. A second suit is less indispensable, but gratifies a lively desire. Additional suits gratify wants of steadily diminishing intensities, and in time the point of satiety is reached even by the most fastidious dandy. Less material wants obey the same law. Eyes tire of beautiful pictures or beautiful scenes. Ears are deadened in time by even the sweetest music. In short, each receptive faculty is subject to exhaustion and requires time to recuperate. Upon this psychological principle is based an economic law of considerable importance, that of diminishing utility. We may formulate it as follows: The utilities of additional units of any good to any consumer diminish normally as his supply of units of that good increases. This law assumes, of course, that no change takes place in the character of the consumer as his supply is being increased. Goods. § 40. Another characteristic of wants of the greatest eco- Present v. nomic importance has reference to the time at which goods Future are to be consumed. The normal man lives in the present and will make greater sacrifices to insure the gratification of present than of future wants. Though very general, this characteristic of wants is more marked for some social classes than for others. It would not be far from the truth to say that young children and savages live entirely in the present; that the manual laboring classes, especially in climates where the winters are mild, look only a few months or a few years ahead in their economic calculations; that the great class of artisans and merchants plan with reference to their own lives and the lives of their children; and that the founders of large family fortunes include generations yet unborn in their view. It is in such psychological differences as these that economists discover a chief reason for the persistence of inequalities of fortune, even in new countries where the same opportunities for advancement are open to all. This fourth characteristic of wants is the basis of a second law in regard to utility which, as is explained later (Section 175), accounts in part for the share of income called interest. If goods available for present consumption be called present Wants Are goods, and those to be available in the future-which may exist in the present as unfinished materials-future goods, the law may be formulated as follows: The utility of future goods is less to the normal consumer than the utility of present goods of like kind and quality by an amount varying directly with the degree of futurity. § 41. A fifth and last important characteristic of wants is that most of them are determined by social standards of taste rather than by the independent judgments of individual consumers. This is conspicuously true of wants for clothing, shelter and forms of amusement. That men-not to say women-dress with reference to the opinions of their neighbors, changing the style of their clothes, their shoes, their hats and even their collars, to conform to the vagaries of fashion, is a fact of familiar observation. There is a little more independence in the selection of dwelling houses, but here too the taste of the many is subservient to that of the few who form independent judgments. As regards amusements it is notorious that one fad follows another, bicycle riding giving place to golf and golf-for those who can afford it-to motoring. This tendency of whole groups of people to want the same thing at the same time has its good and its bad economic side. Its advantage is that it permits large-scale production, which means usually production at less cost in human effort than production on a small scale. As an offset to this, great waste results from constant changes in fashion, not only because goods are produced which no one will buy, but because the machinery, tools and factories designed for their production must be thrown away or adapted to new uses. Moreover, deference to social standards encourages a deadening uniformity in habits of consumption that is inimical to progress. The most desirable situation would appear to be one in which fashions were fairly stable for the mass of consumers and in which a steadily growing minority asserted their independence of social standards and, by giving free play to their individual tastes and preferences, acted as pioneers in testing the merits of new and perhaps better ways of doing things. In most present day communities men conform to standards of fashion that change but little from year to year, while women are more disposed, at least in their modes of dress, to assert their individualities. Improvement thus lies in the direction of encouraging men to be more individual in their tastes, and women to be more stable in their standards. § 42. Closely related to the law of diminishing utility is The Law of the law of demand. Since successive units of any good gratify Demand. less and less intense wants, the desire for successive units diminishes. Demand, as the term is used in economics, denotes effective desire, that is, desire coupled with ability to pay the current price for the desired object. The general law in reference to demand is that the quantity of any good that will be purchased varies directly with changes in the intensities of the desires for the good of purchasers and inversely with changes in the prices that must be paid for it. To illustrate, the development of a new taste increases the quantity of the good capable of gratifying that taste that will be purchased, even though the price of that good remain as before. On the other hand, even though tastes remain unchanged, a fall in the price of a good will cause more of it to be purchased. In the first instance we may with correctness say that the demand has increased. Economists often say the same in the second instance, but there has really been no change in the demand, that is, the amount that will be taken at a certain price, but rather a change in the price that causes the demand to operate at a lower price level. The importance of this distinction will appear when we discuss the influence of demand and supply scales on prices, in a later chapter (Section 58). When the amount of a good that will be purchased increases Elasticity or decreases readily in response to price changes, the demand of Demand. is said to be elastic. This is the case with the demand for goods which are on the border line between necessaries and comforts. A slight fall in the price of such goods brings them within the reach of many consumers who before could not afford them. At the other extreme are the very cheap necessaries used by all classes, such as matches, salt, etc., in the United States. A fall in the price of such goods will not increase the quantity of them that will be purchased materially because every one is already consuming them nearly down to the point of satiety. Where the amount produced is variable, The Law of the costs of transportation prohibitive of shipment to distant markets and the product itself perishable, it may, and often does, happen that the supply of goods for which the demand is inelastic exceeds the demand even at the lowest prices. At such times such goods become a drug in the market and any one may have them who will go to the trouble of carrying them away. This situation has sometimes presented itself in country districts in the United States with reference to such staple crops as potatoes and apples. The elasticity of the demand for a good thus has an important bearing upon the risks connected with its production. Elasticity of demand means stability of prices, inelasticity variability. To escape ruinously low prices in the case of commodities like salt, matches, etc., for which the demand is inelastic, has been a principal motive leading to the organization of some of the trusts discussed in Chapter XXV. § 43. The normal purpose of consumption is to afford pleasure. Since each kind of good is subject to the law of diminishing utility, the pleasures of consumption may be increased by attention to the law of variety. If a man has only corn bread for breakfast, to satisfy his hunger he must push his consumption of it beyond the point where it affords him appreciable gratification. If to his corn bread are added bacon, eggs and coffee, he will be able to supply his body with adequate nourishment, without being obliged to eat corn bread after he has ceased to relish it. Eating has been taken to illustrate the law of variety because it is a universal experience, but the law applies equally well to other forms of consumption. It is really a corollary of the law of diminishing utility, since that law itself suggests the necessity of passing from one form of consumption to another to avoid the uncomfortable feeling of satiety. The ideal which the economic man should, and does unconsciously, have in mind is that of carrying each kind of consumption only to the point where it becomes less pleasurable than another form of consumption that may be enjoyed at the same expense. By changing to the new form of consumption whenever it affords the more pleasure, he is able to get the maximum gratification permitted by his income. |