It has already become clear that an increase of values is not always an indication of increased welfare. The Western settler is not better off with two cribs of corn than with three, although he places nearly twice as high a value upon the two after one is destroyed, as he did upon any two of the three so long as he had them all. It is total utilities that limit welfare, not total values. But in determining the relative welfare of indi viduals in economic society, value plays an im portant part. The producer of wealth is chiefly interested in the value rather than in the utility of his product. A prominent inventor is said to have derived very little personal advan tage from those inventions which have most contributed to human happiness, except that they have brought him personal satisfaction and renown. Minor inventions, of which the public has known comparatively little, have proved more profitable to him. Utility and value may, as in this instance, drift widely apart, and both may be far in excess of cost. Con sumers as a class are concerned that there shall be great utility and little value ; producers, that there shall be great value and little cost ; society as a whole, that there shall be great utility and little cost.
We must now redeem the promise of an earlier paragraph to explain the method by which the social value, or, to adopt a more familiar expression, the market value, of a commodity is determined. The decisive factors are the supply of the commodity and its final utility to the last, i.e., the least eager, consumer who is in position to take any portion of it.
Let us suppose that there are on sale in a given market twelve pairs of shoes, and that there are an indefinite number of persons who desire shoes, provided their value is not higher than the final utility of shoes to themselves. For the sake of simplicity it is assumed that all the shoes are to be sold, whatever they will bring ; in other words, that the present owners do not enter the lists in competition with buyers, but freely place all twelve pairs in the hands of a dealer with instructions to sell them all at the best rate which he can get. It will also be assumed that each purchaser desires but one pair, and that the condition of con sumers varies so widely that no two will find the same final utility in a pair of shoes. The first finds himself in urgent need of shoes, and their final utility to him is almost as great as their initial utility. If he could not otherwise find suitable covering for his feet, he would willingly go without a suit of clothes, or live in a cheaper house, to provide himself with shoes. The final utility of shoes to him we may represent by the number 24. Others among the possible purchasers attach less im portance to them by differences which permit us to range their estimates consecutively from 24 to 1, there being a consumer for each inter vening number. If there were but a single pair of shoes to be sold, it would bring 24. The duty of the dealer would be to find the pur chaser for whom shoes have the highest utility, and to insist upon securing all that he is willing to give. In the case supposed, there are twelve
pairs, and all are to be sold. It is therefore necessary that as many as twelve customers be supplied, since no one desires more than one pair. It is now the duty of the dealer to find the twelve customers for whom shoes have higher final utility than for any others, and the twelfth or last one to be brought into the bar gain will be, according to the conditions as sumed, a consumer for whom shoes have a final utility of 13. The aggregate of the final utilities enjoyed by the twelve consumers will be but their market value will be deter mined by the final utility of shoes to the twelfth purchaser. Since this is 13, the market value of shoes on the day of the sale will be 13, and the twelve pairs will bring 12 x 13, or 156. There is no method by which the dealer can make any purchaser, however urgent his need, pay more in the open market than the value of the last pair to be sold.
If he does not care to dispose of the whole stock, but would rather reserve one pair than accept so low a price for it as 13, he can then disregard the estimate of the twelfth would-be purchaser just as he previously disregarded all lower estimates. The final utility which would then become operative is that of the eleventh customer, for whom shoes have a final utility of 24+23+22+21+20+19+18+17+16+15+14+13=222.
14. The eleven pairs now to be sold will bring II x 14, or 154, nearly as much as was obtained for the twelve pairs. In the actual course of business it is often found that the total value of a stock is increased by the withholding of a small part of the supply. The reason is that a larger multiplicand is obtained by the rise in final utility.
The only modification of this account of the process by which market values are determined necessary to make it fit the normal operations of the market, is the fuller development of the idea of supply. The supply of a commodity is not as a rule in the hands of a single dealer and it is not definitely fixed in amount. For the moment the supply of any given commodity may be fixed by physical causes. The abun dance or the meagreness of a harvest, the success or failure of a fishing expedition, the possession or the lack of suitable capital, or other causes, may determine the amount of the commodity to be offered for sale. But looking over a longer period, it will be recognized that these agencies can be controlled in large part, and at any rate energies can be diverted from one channel to another in such way as to increase to almost any extent desired the supply of any single commodity. Whether this will be done depends upon whether there is a sufficient motive, the probability of a sufficient reward. The amount of the reward depends upon the final utility of the commodity in question to con sumers. If there are many persons for whom it has a steady, high final utility, the supply will be governed by this fact.