Social Value
Chapter 5: Demand Curves and Utility Curves
Benjamin McAlester Anderson Jr.
Table of Contents | Next | Previous
Much of the foregoing would be needless were it not for the fact that there has been, and is, in the writings of the Austrians and those who have followed them, a confusion of two very different things: on the one hand, the curve of utility for a single individual of a given good, measured in terms of money, on the assumption that the marginal utility of money remains constant to him; and, on the other hand, the demand-price curve of that commodity for a whole community or a "trading body,"[1] made up of many individuals, differing in wealth and in tastes.[2] The former curve does express a diminishing scale of absolute feeling-magnitudes,[3] concerned with the consumption of the good. The latter does not. The latter is not necessarily a diminishing utility curve at all, for the poor man whose price offer is lowest may easily desire the good more intensely than does the rich man whose demand price is highest. These confusions, in the writings of Bohm-Bawerk and Wieser, especially, have been adequately commented on by Pro-
(41) -fessor Davenport,[4] who adheres pretty carefully throughout to the distinction drawn above, and to the strictly individualistic, subjectivistic conception of price determination, with its correlate of relativity. Jevons's confusion on this point has been noted by Marshall.[5] It is amazing, really, when one sets about to find them, how numerous are the occasions on which leading economists have been guilty of this confusion - a confusion that utterly vitiates very many of the conclusions based upon it. In truth, Professor Davenport is not far wrong when he asserts that "the general understanding of Austrian theory has come to be that it explains market value by marginal utility, and resolves market value into marginal utility."[6]
To go through the roll of the economists in pointing out this confusion is a needless task here, but a few representative names must be called, in addition to those mentioned above. Thus, Pierson : [7]
There is nothing to prevent our treating a group of persons as a unit, and examining the position which commodities occupy in relation to that unit. If we do this, we shall see that the above diagram [the regular diminishing utility diagram of Jevons], depicting the position which they occupy in many cases in relation to the individual, must depict the position which they occupy in a still larger number of cases in relation to the group. And the truth of this statement is greater in proportion to the size of the group.
(42)
Similar confusions appear in Professor Patten's Theory of Prosperity, in a number of places.[8] President Hadley's discussion of "Speculation " falls into this confusion, also.[9] Professor Ely's confusion on this point is instanced in his Outlines of Economics, 1908 edition, pp. 358-59.[10] Schaeffle, in his Quintessence of Socialism,[11] treats utility as if it were demand. With Professor Flux it seems more a deliberate identification than an unconscious confusion, as he recognizes very' clearly the complication which differences in wealth bring in, and yet none the less declares, " The measure of the exchange value is, then, the utility which is on the margin of not being realized, or the marginal utility," and "The series of marginal-demand-prices, corresponding to all the varied possible scales of supply, register, in fact, the utility of the marginal supply for each such scale." [12] It is somewhat disheartening, however,to find Professor Marshall, who has pointed out the confusion on the part of Jevons, allowing his marginal notes to speak of "utility and cost" when the body of the text, to which they refer, is discussing demand and supply.[13] And still more disheartening to find Professor Davenport, at the
(43) end of his cautiously written volume, marked throughout by the greatest clearness of thought, and by especially painstaking care in the criticism of this confusion in the writings of others, saying:
Limitation upon the supply of goods relatively to the need gives value. Thus value in producible goods is ultimately explained by human desires over against a limitation of supply due either to the shortage of instrumental goods or to the irksomeness of effort, or to both.
With great esteem for good singing, and with the rarity of good singers, the high gains of prima donnas find sufficient explanation.
This, as a separate, unqualified proposition in the "Summary of Doctrine,"[14] is hardly to be counted anything but a lapsus, even though recognition is later accorded to the necessity of backing up "utility" with "purchasing power."
But it cannot be too strongly insisted, in the first place, that only particular ratios, market relations, can come out of the individualistic analysis of satisfactions of consumption and dissatisfactions of production, and that, in the second place, these ratios, and this relativity, are but surface explanations, that point to, and are based upon, something underlying and definite-without which they would be hanging in the air. [15]
(44) [This page contains only the continuation of the last footnote/endnote.]
