In this illustration it was assumed that a unit of each commodity had the same cost. In this case, the unit consumed is always the one that has the largest utility. But where the cost of the units is different, cost must be considered also, and we commonly do so by asking ourselves whether the thing we are buying is worth as much as other things which could be obtained with the same expenditure. Thus we are constantly abstaining from the further consumption of one thing, not because our wants for it are fully satisfied, but because something else of equal cost appears at that moment to be more important.

Future Wants. Not all of the goods for which we strive are wanted for present consumption. We recognize that we shall

1 a 1 b 1 c 1d le
FIG. 4

2a 2b22 d¦ 2 e
FIG. 5

have needs next month or next year, and we attempt to make some preparation for them. These future needs, it is true, usually appeal to us less vividly than if they were present, but we attach a present importance to them and grade them, and they enter into our calculations when we spend money, modifying the order of our consumption. This will be seen from Figures 4 and 5. Let us suppose that in Figure 4, a, b, c, d, e represent the diminishing importance of successive units of a commodity for present consumption, and that Figure 5 shows the present importance attached to the future consumption of similar units. Then an individual would consume 1a, i.e. in the present. But a second unit for present use would rank lower in present esteem than a unit saved for future use. The unit 2a would

then be saved, and then the order would be as follows: 1b, 2b, Ic, etc. Thus this individual has saved two out of five units, i.e. 2a and 2b, with the same sort of mental calculation as he would use in deciding to spend a nickel for a peach rather than for a pear. But if some one should ask him to spend his fifth dollar for 2c instead of for Ic, he would require some extra inducement to induce him to postpone at ruling prices. It thus appears that a certain amount of saving is done without payment, but if saving is to be carried beyond a certain point, it must be given some special premium or compensation. This, as we shall see later, has a very important bearing upon the problem of interest.

The Margin of Consumption. - Either by a conscious balancing against each other of the pleasures to be obtained from two or more possible purchases, or oftener, by simply buying the things which we want more than we want other things, we tend to keep our unsatisfied wants in a state of approximately equal intensity. We apportion our expenditures so that our money will "go as far as possible"; that is, so that it will provide those things that have the strongest present appeal to us. Every person thus has a margin of consumption, which is measured by the utility obtained in return for the final or marginal dollar expended for any one of the things that he consumes. If he unwisely expends too much for any one thing, his more important unsatisfied wants for other things press upon him urgently, and he is apt to try to restore the balance or equilibrium in his expenditures, or, in other words, to bring his margin of consumption into alignment.

An individual's margin of consumption depends primarily on his income, but also on his tastes and habits, his disposition to save, and the relative emphasis which he places upon his present and his future wants. Then, too, one's desires are constantly changing under the influence of whim, fashion, satiety, sellers' advertising, education, travel, reading, and new experiences of all kinds. Expenditures of all kinds are thus called into being by the necessity of maintaining the level of the margin of consumption. The margin of consumption is different for different persons. This is partly a matter of differences in individual tastes and purposes, but it is more largely a matter of differences in incomes. The larger one's income, the lower, of course, is one's margin of consumption, in the sense that one is able to acquire goods in larger quantities and thus to satisfy wants of less urgency. And, of course, a larger variety of commodities can be consumed, so that as one's income increases one's margin of consumption is normally extended downward and outward, including more things, but things of less importance.

Consumption and Saving. — It is difficult to say just where consumption should stop and saving begin, to secure the best results for society as a whole, but the principle is clear. So much, and only so much, should be saved as will conduce to a maximum total service over long periods of time. The present generation might deny itself everything except the barest necessities, and labor to increase the productive equipment to be used in the future; but the next generation could not pursue the same policy, for some one must consume the products of the factories built today, otherwise the building of them is wasted effort.

Alleged Present Consumption of Future Products. We often hear of consumption in advance of production. It is said people live on the future. It is frequently argued that during the American Civil War we were consuming faster than we were producing. It is alleged that the government borrowings at that time represented the consumption of future earnings. But it must be apparent that it is impossible to consume faster than we produce unless we consume past savings by not replacing worn-out equipment, or by failing to maintain the customary stocks of goods, or unless we borrow from other nations. We cannot eat today the wheat or potatoes of tomorrow, nor can we wear coats before they are made. What is alleged can never be true except of the individual consumer within the nation, or of the nation as a whole when the capital or other wealth of the country is diminishing, or when its foreign debt is increasing. What really happened at the time of the Civil War was this: we as a nation became indebted to some extent to foreigners, and within the nation some of us gained while the rest were losing. Government borrowings do not represent a present consumption of future wealth, but a special present use of purchasing power for which a government agrees to remunerate its owners in the future. If war can be carried on with the aid of borrowings, it can, — leaving out of consideration what foreigners send, with a sufficiently perfect taxing machinery, conceivably always and practically sometimes, be carried on without borrowing. It is only a question of how to get hold of the means of producing powder and bullets and the

necessaries of life. War was formerly carried on without bond issues; they are a comparatively recent contrivance. Consumption can never anticipate future production for the nation as a whole taken by itself; it can only anticipate future ownership. Luxury. Luxury is the name of a vague something which society has always viewed with a sense of mingled tolerance and condemnation. What is its meaning? In the first place, it is clear that people ordinarily consider as luxuries many things in themselves innocent and desirable, as handsome dresses, jewels, pictures, etc. No one but an ascetic will condemn as wrong in themselves things that appeal to taste and finer appreciations, and yet we feel that the use of such things is not always justifiable. Second, the popular idea of luxury recognizes a difference in persons. We cannot help condemning in one person what we approve in another. Third, we judge luxury differently at different times. There is a continual transfer of articles from the list of luxuries into that of comforts and necessities. This transfer is brought about by the consensus of social judgment, and is increasingly acquiesced in by all. So we see that the term "luxury" does not apply to goods of a certain character, but to certain goods in their relation of time and person. For the purpose of discussion, we shall define luxury simply as excessive personal consumption.

Our definition of luxury as excessive consumption necessarily condemns it as unjustifiable, but this should not be taken as a condemnation of an enjoyment of more than the simplest kind of life. There would be little purpose in producing wealth in larger and larger volume if it did not mean a higher and better standard of life. But this meaning does not justify the squandering of immense sums on passing caprices whose satisfaction cannot be justified from the standpoint of what is a sane life. Nor does it constitute a defense of ostentatious expenditure. Extravagant expenditure is sometimes condoned on the ground that it gives employment to labor, but obviously just as much employment would be given to labor by an equivalent expenditure for laudable purposes. Expenditures for any present gratification can be made only by reducing the

amount either of other expenditures or of savings. Rarely in these days are savings hoarded: they are used for gainful, often for socially productive, purposes. Extravagant expenditures, therefore, may divert productive agencies into employments less beneficial to society. Moreover, to look upon expenditure as desirable because it gives employment to labor, or "puts money in circulation" and "makes trade good," is to forget that, ethically viewed, production is justified only through the satisfaction of human wants, and so far as the wants satisfied are trivial or worse the necessary productive effort is virtually wasted.

Harmful Consumption. - We have been careful to avoid the impression that luxury consists in the use of pernicious goods. It is a common query, "Why should I not have this if it does me no harm?" This we have tried to answer in the preceding paragraphs. A luxury may be a positive good in itself, a satisfaction which society may well hope to make general, but it is a good which society cannot yet afford, because other and greater wants are yet unsatisfied. But there is another kind of consumption which is objectionable in an entirely different way, not because it is excessive or premature, but because it is harmful in itself. Aside from the fact that such consumption usually tends to diminish the sum total of the durable satisfactions that the consumer gets out of life, it ordinarily lowers his productive efficiency, and this involves a further loss to himself, to any who may be dependent upon him, and to the whole community.

Statistics of Consumption. - Instructive investigations have been made as to the relative importance of the leading items in the family budget. The late Ernst Engel, the former distinguished head of the Prussian Statistical Bureau, advanced the theory that it might be possible by a careful study of a sufficient number of family budgets for a period of years to indicate the broad changes in consumption, and thus by a sort of social signal service to predict the coming of industrial storms. Nothing has been so far accomplished along this line, but Engel's tables are important in other ways. From Table I (page 145) he deduces the following four propositions: