Here, then, we reach the fundamental cause of value, and the ultimate fact of which the science of economics need take account, — the clue which may unravel the bewildering maze of economic society. The making of goods, the efficiency of production, the direction which industry takes, the comparative efficiency of different economic societies, the interchange of products, markets, commerce, credit, value, the rewards to producers determined by the relative values of different products, —all these impor tant phenomena fall into orderly relation if we start with the final utility of goods 1 to con 1 Not their market value. This is determined by two ele ments, final utility and supply.
sumers. It is true that changes are continually taking place in the final utilities of commodities, and it is important that we should understand their cause and method of variation. But it is even more important that we should fully appreciate their pivotal character and far-reach ing consequences.
Changes in the final utility of a commodity to individuals do not affect the supply until they become so permanent and extensive as to influence the makers of goods, as distinct from those who have stocks on hand in the markets. But speaking only of such extensive changes, and regarding the power of society as fixed, we may say that final utility to a large extent deter mines the supply. If steel acquires a higher utility by a discovery of important new uses to which it can be put, productive power is turned in that direction and its supply is increased. A multitude of economic relations are modified by the change. Credit, fixed capital, circulating capital, the market for steel, the market for commodities of which steel is a component element, the market for commodities desired by the producers of steel, and countless other phenomena, undergo more or less modifica tion—all these influences originating in the change in the final utilities of the commodities affected.
Market value is ascertained, not by observing the descending scale of estimates made by all possible communities, but by measuring, along this scale, the quantity which producers finally decide to place upon the market. Wherever that quantity reaches, there on the scale is the precise final utility which determines market value. If the wants of men remain unchanged
in character and intensity, the market value is fixed by a simple calculation of the supply. If wants change, a temporary but sometimes seri ous misadjustment may arise between the sup ply and the anticipated rewards to producers. It may be found that a largely increased supply is met by a large reduction in the number of persons for whom the commodity possesses any high degree of final utility. The value, unless the stock is of such a nature that it can be with held from the market indefinitely, may sink so low that it does not cover the costs of produc tion. On the other hand, a shrewd producer may bring a large stock at the precise time when final utility is rapidly rising, or he may induce the rise by his own skilful advertising, leading people to attach an altogether new im portance to the want which the article is de signed to satisfy. Notwithstanding his utmost efforts in production, he may not be able to sat isfy even all of the consumers whose estimate of the article is sufficiently high to reward his efforts. If the article is one protected by patent or copyright, or some natural monopoly, the final utility may long remain near the initial utility, bringing great rewards to producers, and leaving very little margin between utilities and values.
The market value of any commodity, then, is determined by its final utility to the last con sumer, whose cooperation is necessary to ex haust the supply ; or, to be more accurate, since this last consumer, like any of the earlier ones, may demand more than one increment of the commodity, and so count in connection with more than a single unit of consumption, it is determined by the final utility of the last por tion placed upon the market. If there are any reservations in the minds of sellers as to the point below which they are unwilling to allow the value to fall, then to that extent their own estimate must be included in precisely the same way as that of other buyers. If all of the sup ply is not taken by persons to whom it has a higher final utility, it is the final utility to its owner that determines the value of what remains.