I and II offer equal satisfaction. A person choosing three units would select two units of I and one of II. The fourth unit to be chosen might be, indifferently, a third unit of I, a second unit of II, or a unit of III-and so on.

We must not permit the table to mislead us, however. It is a dangerous illustration in two or three particulars. If carried out to want X or XI it would seem to imply that the sum total of human wants could be sated, and this we know to be impossible. Again, if these figures were charted, the curve of descending utility would come down at the same angle for all wants. This is of course not the case in actual life. The curve of utility obviously descends more rapidly in the case of cook-stoves than in the case of slices of bread. Another way of stating this is to say that desire is more elastic in the case of slices of bread than in the case of cook-stoves. Finally, we must not suppose that anyone can really measure satisfactions in any such definite way as is here assumed in using the Arabic numerals. It must be kept in mind that an illustration is not a demonstration, and that a table or chart used to illustrate one feature of a subject may be a faulty illustration of another feature.

What consequences flow from the above statements? A few of the consequences are here listed and the student is asked to show how and why these consequences do flow.

a) With an increased output of a given good its price tends to fall, other things remaining the same.

b) If the output of several goods should be increased at the same rate the prices might fall at different rates.

c) Diversity or variety of expenditure occurs.

Satisfaction per unit

d) In part, here is an explanation of how it happens that a certain amount of social energy is devoted to the production of good x and a certain other amount to the production of good y. In other words, here is part of the explanation of the distribution of land, labor, and capital among the various activities of society.

3. The present estimation of the utility of a future good is less than the present estimation of the utility of a present good, assuming no change in either quantity or quality of the good. If you were asked whether you preferred to have a unit of x today or three years hence, under the conditions above assumed, your decision would be to receive it today. There are uncertainties in life; you might not live the three years; your wants might change; three years hence is a "long time off." Of course, if x is a bottle of grape juice, it might be preferred three years hence as wine, but in that case a change in quality has occurred. Equally, of course, if x is now plentiful and you have reason to know that x will be scarce three years hence, you might vote to defer present consumption, but in that case a change in quantity has occurred.

The proposition here before us has been illustrated by the following diagram:

If this proposition be true, should we have reason to expect that society might have occasion to induce some of its members to save by paying them interest on their savings?

4. Our wants are often imposed upon us by the force of imitation and by social standards. The gregarious instinct is powerful. We move in herds. We buy hats and clothing at Easter. We buy extensively at Christmas. Teddy bears become the rage and as suddenly are

supplanted by some new fad. The tulip craze affects the industry of a whole country. And so examples without limit may be heaped up. The economist, however, is mainly interested in the economic consequences of these characteristics of our wants. Some of the consequences of this particular characteristic may be stated as follows: a) An explanation of the magnitude of some of our industrial phenomena.

b) Great social saving through the economies of large scale production.

c) Great social waste of machinery, goods, and established industrial and commercial connections when a shifting of taste occurs. d) A partial explanation of such phenomena as rush work, sweated industries, and overcrowding.

e) A partial explanation of the growth of cities.

5. Our subjective estimate of satisfactions is continually shifting. I may have in mind such a table of satisfactions as was used under 2, above, and a word from you, an advertisement read, a look at a show window, or any one of a thousand other things, trivial or important, may change the table. With the lapse of time the case is even more striking. We change as a result of every factor of our environment, by education, by travel, by association, even by the very process of consuming goods.

Since industry caters to wants, it follows that there will be a continual shifting in industry and that a person engaged in supplying the means of satisfaction of these wants will assume risks and chances quite independent of the risks of climate, fire, or accident. It need not surprise us to find that men must be rewarded to induce them to incur these risks.

In all the above, little was said concerning the why of wants. This is a problem for the psychologist rather than the economist. It is referred to at this point merely to emphasize the fact that the economist is making no arbitrary assumptions in this matter. Wants may be and are the results of instincts, reason, suggestion, habits, and a thousand other things. Be all that as it may, the significant thing for the economist is that motivation of economic actions is to be found in wants. The purpose of this survey is solely to cause the student of economics to feel that the curtain has been pulled aside and that a view has been given of some of the real forces actuating industrial society.

See also 5. How the Industrial System Works.

101. The Individual and the Gain Spirit.

103. Human Motives in Economic Life.

321. THE PRESSURE EXERTED BY THE CONSUMER

A1

Paradoxical as it may appear, in the highly developed commercial custom of the England of today the capitalist manufacturer stands at as great a relative disadvantage to the wholesale trader as the isolated workman does to the capitalist manufacturer. First, we have the fact that the manufacturer stands to lose more by failing to sell his product with absolute regularity than the wholesale trader does by temporarily abstaining from buying. To the manufacturer, with his capital locked up in mills and plant, continuity of employment is allimportant. To the wholesale trader, on the other hand, it is comparatively a small matter that his stocks run low for a short time. His unemployed working-capital is, at worst, gaining deposit interest at the bank, and all he foregoes is a fraction of his profits for the year. Moreover, as the wholesale trader makes his income by a tiny profit per cent on a huge turnover, any particular transaction is comparatively unimportant to him. The manufacturer, earning a relatively large percentage on a small turnover, is much more concerned about each part of it. The disparity is no less great with regard to that knowledge of the market which is invaluable in bargaining. The manufacturer, even if he has a resident agent at the chief commercial centre, can never aspire to anything like the wide outlook over all the world, and the network of communications from retail traders and shipping agents in every town, which make up the business organization of the wholesale trader.

Thus, when the manufacturer negotiates for an order, he is, within certain undefined limits, at the mercy of the wholesale trader. He is told that the price of his product is too high to attract customers; that the shopkeepers find no demand for it; that foreign producers are daily encroaching on the neutral markets; and, finally, that there has just come an offer from a rival manufacturer to supply the same kind of article at a lower price. The manufacturer may doubt these statements, but he has no means of disproving them. He is keenly

1 Adapted by permission from Sidney and Beatrice Webb, Industrial Democracy, pp. 662-72. (Longmans, Green, & Co., 1902.)

alive to the fact that his brother manufacturers are as eager as he is to get the order, and some of them, he knows, are always striving to undercut prices. Unless he is a man of substance, able to wait for more profitable orders, or unless his product is a specialty of his own, which no one else makes, he is almost certain to be tempted, rather than lose the business, to accept a lower offer than he meant to. The price he has accepted can only work out in a profit by some lowering of the cost of production.

But we should make a mistake if we imagined that the pressure originated with the wholesale trader. Just as the manufacturer is conscious of his weakness in face of the wholesale trader, so the wholesale trader feels himself helpless before the retail shopkeeper to whom he sells his stock. Here the inferiority is not in any greater loss that would arise if no business were done, for the retailer is impelled to buy by motives exactly as strong as those which impel the wholesale house to sell. Nor is it in any difference in bargaining power. In both these respects the wholesale house may even have the advantage over the shopkeepers. But the shopkeepers have a closer and more up-to-date knowledge of exactly what it is that customers are asking for, and what is far more important they can to some extent direct this demand by placing, before the great ignorant body of consumers, one article rather than another. They have, therefore, to be courted by the wholesale trader, and induced to push the particular "lines" that he is interested in. There is, however, yet another, and even a more active, cause for the weakness in strategic position of the wholesale trader. There has been, for the last half-century, a constant tendency toward a revolution in retail trade. In one town or one district after another there grow up, instead of numberless little shops, large retail businesses, possessing as much capital and commercial knowledge as the wholesale house itself, and able to give orders that even the wealthiest manufacturers are glad to receive. Hence the wholesale house stands in constant danger of losing its clients, the smaller ones because they cannot buy cheaply enough to resist the cutting prices of their mammoth rivals, and these leviathans themselves because they are able to do without their original intermediaries. The wholesale trader's only chance of retaining their custom is to show a greater capacity for screwing down the prices of the manufacturers than even the largest shopkeeper possesses. He is therefore driven, as a matter of life and death, to concentrate his attention on extracting, from one manufacturer after another, a