made in money, so that fluctuations in the value of money will show a change in the total valuation even if there is no change in the relation between the wants of a community and its goods other than money. Again, free goods are not included in such an estimate. Also, a good deal of public property does not have a money estimate put upon it. Who would attempt to say what our rivers and harbors are worth, and yet why should not these be included in the estimate if our canals are? It seems that much that is included in the estimate is wealth from the individual standpoint only, but not from the social, as in the case of the valuation of a business whose value consists largely of patents or monopolistic privileges. In the table above, for example, the value of railways in 1904 was obtained by capitalizing their net earnings. Is this sum properly included in an estimate of the total amount of wealth in the United States? The inclusion is proper if we are confining ourselves to a statement of the sum of the values of property rights, but it is misleading if we wish to show the relative importance of railways and of property in a competitive industry, or if we are discussing railways in relation to the public welfare. A similar line of thought is suggested with reference to land values. Ten years ago we had about the same area and the same quality of land as we now have, so that its high value to-day cannot mean that we are better equipped with natural resources. We must be on our guard against attaching improper significance to estimates of total wealth. Changes in total value are not an accurate index of changes in well-being. It is possible that an increase in concrete material goods will actually decrease the total quantity of wealth measured in dollars. A hundred bushels of wheat at $1 per bushel have a higher selling value than two hundred bushels at 40 cents per bushel. If by some magical process all goods could be made free as air, there would be no value whatever. An estimate of the value of our stock of wealth also necessarily omits to take account of personal services. It is obvious also that per capita wealth has a more direct relation to well-being than total wealth. Individual wealth and value connote scarcity; well-being implies abundance. Nevertheless. under present conditions, it is probable that an increase in per capita individual wealth, when not due to fluctuations in the value of money, also indicates an increase in well-being. There is no likelihood of our being able to increase the quantity of economic goods to such an extent as to render them free and hence valueless; and, on the other hand, as will be more fully explained later, new wants are constantly developing, and value is at bottom the power to minister to unsatisfied wants. The national income is a concept which takes account of the services rendered directly by persons as well as of the material things that are used. The national income, objectively considered, is a gigantic stream of food, clothes, comforts, personal services, etc., which is used up in the direct satisfaction of wants in a specified period, such as a year, by the millions of individual acts of consumption. Some writers would include also the additions to our industrial equipment, such as new machines; but they may also be regarded as promises of an enlarged future income of society, not a part of its present real income. These two views correspond to the two definitions of income on page 98. It is difficult to make an accurate estimate of the national income in terms of its money value, and not much confidence can be placed in the estimates that have been made. A reliable calculation of this kind would, however, be useful as an index of the maximum gain that might be derived by the mass of the people from agitation for a more nearly equal distribution of wealth. It would be interesting to know what the scale of living would be if the national income were equally distributed. At present we do not know whether a family of five persons would have $800 or $1600 to spend. The national income may be looked upon as the national dividend, the sum total of good things to be divided among the various families or individuals. The forces determining the size of this dividend, the manner of its division, and the saneness of its use are the main topics for discussion in political economy, and hence it will be our purpose in subsequent chapters to describe the general tendencies in the consumption, the production, and the distribution of wealth and income. QUESTIONS AND EXERCISES 1. Does the following statement agree with the definitions in the text? "The true basis for an estimate of a nation's wealth is to be found in the enjoyments of its members." Hadley, Economics, p. 4. 2. Are the following wealth: air? whisky? a copyright? Lake Michigan? skill as a carpenter? good health? 3. Discuss the following: "Among the motives which lead men to accumulate wealth, the primacy, both in scope and intensity, therefore, continues to belong to this motive of pecuniary emulation." Veblen, Theory of the Leisure Class, p. 34. 4. State the significance of the following: "A horse is not wealth to us if we cannot ride, nor a picture if we cannot see, nor can any noble thing be wealth except to a noble person." Ruskin, Munera Pulveris, p. 10. 5. Discuss the following statement: "In 1770 Arthur Young reckoned the income of England to be £120,000,000; in 1901 the income may be roughly set down at £1,600,000,000. Making correct allowances for population and for prices, this growth of income would signify a large increase of commodities per head; but would it tell us that we are working and living somewhat better than our ancestors?" Hobson, The Social Problem, p. 43. REFERENCES CARVER, T. N. The Distribution of Wealth, Chap. III. CLARK, J. B. The Philosophy of Wealth, Chaps. I and III. FISHER, IRVING. The Nature of Capital and Income, Chaps. I and II. LESLIE, T. E. C. Essays in Political Economy, Chap. I. MALLET, B. A Method of Estimating Capital Wealth from the Estate Duty Statistics, Journal of the Royal Statistical Society, March, 1908, MARSHALL, ALFRED. Principles of Economics, Book II. RUSKIN, JOHN. Munera Pulveris, Chap. I. SIDGWICK, HENRY. The Principles of Political Economy, Book I, Chap. III. SMART, WILLIAM. Studies in Economics, Chap. VIII; and Distribution of Income, Book II. SPAHR, C. B. The Present Distribution of Wealth in the United States, Chap. V. VEBLEN, T. B. The Theory of the Leisure Class, esp. pp. 24-34. WAGNER, ADOLPH. Grundlegung, der politischen Oekonomie, 3d ed., Vol I, pp. 83-135. Special Census Reports, 1907, Wealth, Debt, and Taxation. V PART II CONSUMPTION CHAPTER VIII CONSUMPTION Consumption Defined. - Consumption in economics means the use of goods in the satisfaction of human wants, which is the purpose of a large part of our economic activity, but it is not the sole purpose, since activity is to a certain extent an end in itself. Nevertheless, in economic society as it is organized to-day we are perhaps justified in looking upon consumption as the motive force behind production. Wants are so far from satisfied at present that men look for work, not because they seek to be rid of surplus energy, but because they crave the goods which their wages will buy. The power of unrestricted consumption seems to be the prevailing ideal. Industry, furthermore, is organized and conducted primarily to satisfy the consumer, not the worker. This fact is the basis of the Consumers' League, which aims to improve conditions of production by asking the consumer to refuse to purchase the goods of unfair employers. A study of the consumption of wealth falls only partly within the domain of economics, for the use of wealth is a large part of the problem of life. Passing judgment on the standards according to which the rationality of certain wants is to be measured does not directly concern the economist. Productive and Final Consumption. - When used without qualification, the word "consumption" in economics is commonly taken to refer to the use of goods to satisfy wants directly. But some goods, such as machines and raw materials, are used up in the production of other goods. This we may call productive consump tion, while that consumption which attains the ultimate goal of economic activity directly in the satisfaction of wants is final consumption. It is now less necessary than it was in the days of Carlyle and Ruskin to insist that food consumed by laborers is not productive consumption. They consume, not merely for the sake of production, but also for the sake of satisfaction. Man is our final term. Human Wants. In the study of human wants as a starting point in economic theory, two facts stand out prominently: the expansion in the number and variety of the wants, and the satiability of any particular one of them. As man has progressed from savagery to civilization, the variety of things he desires and even considers necessary to his existence has expanded enormously. His interests become more varied, his capacity to enjoy becomes larger, and he lives a fuller and more complex existence. There are indeed those who would have us "return to nature" and live a simple life, but taking the world as it is, we may assume that there is no limit to the capacity of the community to use more goods. But when we turn to the consideration of some particular want by itself, the matter is wholly different. Our nerves grow weary of a repeated stimulus, and any attempt to continue indefinitely the enjoyment of some sensation results in satiation. A phonograph record grows stale after a number of repetitions. An apple does not always have the same degree of utility for any one of us, varying from the highest degree, if we are on the point of starvation, to disgust, if a considerable number have just been consumed. Law of Diminishing Utility. This fact is of fundamental importance in the study of economics and has been dignified by the term "the law of diminishing utility." In formal words: The intensity of our desire for additional units of any commodity decreases as we consume successive portions. It should be observed that an interval of time between the successive acts of consumption may permit our nerves to recuperate so that no diminution in the degree of utility is apparent. Again, the increase in a person's stock of an article held for the purpose of exchange, such as money, can cause a decrease in the utility of an additional unit only to the |