has run its course.

CHAPTER III

UTILITY AND THE MARGIN OF CONSUMPTION

Sec.1. _The Forces behind Supply and Demand_. The laws enunciated in the
preceding chapter constitute the framework and skeleton of all
economic analysis; but they do not carry us very far. It is only
through the agency of these laws that any influence can affect the
price of anything: but what influences may so affect it is a question
which we have still to consider.

Let us begin with ordinary commodities and ask ourselves, in the light
of experience and common sense, upon what factors their price seems
mainly to depend? Two factors spring to mind at once; their cost of
production and their usefulness. As regards the former, the case seems
clear enough. We may indeed sometimes grumble that the price of this
or that commodity is unconscionably high in comparison with its cost;
but this only goes to show that we conceive a relation between price
and cost as the normal, governing rule. If one commodity cost only a
half as much to produce as another, we should think that something had
gone very wrong indeed, if the former commodity were sold for the
higher price. But, when we turn to the usefulness of commodities, the
case is not so clear. Usefulness has some connection with price, so
much is certain; for an entirely useless thing, fit only for the
dust-bin (and known to be such, it may be well to add) will fetch no
price at all, however costly it may be to produce. But it is not easy
to express the connection in quantitative terms. It seems reasonable
enough to say that the prices of commodities are roughly proportionate
to their costs of production. But directly we contemplate saying a
similar thing of their usefulness, we are pulled up short. As we look
round the world, and enumerate the commodities which by common consent
are the most useful, salt, water, bread, and so forth, the striking
paradox presents itself that these are among the cheapest of all
commodities; far cheaper than champagne, motor-cars or ball-dresses,
which we could very well get on without. As things are, of course, a
ball-dress, or a motor-car costs more to produce than a loaf of bread
or a packet of salt; and the common-sense explanation of the paradox
seems, therefore, to be that the cost of production is a more weighty
influence than the usefulness, or utility, as we will henceforth call
it (so as to include the satisfaction we derive from not strictly
useful th