Principles of Evaluation I 1

PRINCIPLES OF EVALUATION I 1. Quality, a reflection of desire. § 2. Substitution of goods. § 3. The principle of substitution. § 4. Substitution of like and of unlike goods. * 5. Complementary goods. § 6. Changes of desires and of valu ations. 17. Effect of repeated stimuli on our feelings. § 8. Different quantities and corresponding desires. § 9. Stock of homogeneous units: principle of indifference. § 10. Diagram of marginal valuation. § 11. The paradox of value.

§ 1. Quality, a reflection of desire.

Our task now is to explain—in the case of present, directly enjoyable goods—the elementary principles of valuation. We have already seen that things have inherent physical and chemical qualities which are quite beyond the power of man to change. We can go further than this and say that no two objects are exactly alike. Each object is in an extremely literal sense a "unique." "Alike as two peas" means merely so near to likeness that the eye cannot detect the difference. The dif ferences are minute, and for many practical purposes quite negligible. It is such a degree of likeness for practical pur poses which we have in mind when we speak of a "grade" of goods, and (somewhat inconsistently) of "like" goods having different qualities. Thus all apples may be spoken of as being "like" goods. They are alike botanically; they are also alike to a degree in the uses of which they are put. There are, nevertheless, different varieties of apples, and the apples of a given variety may always be "graded"—according to size, or to color, or to degree of perfection—when the grower uses them himself or prepares them for the market. These differ. ences are inherent in the apples themselves. When, however, we speak of apples of "good quality" or "bad quality," we 31 mean simply that we desire the so-called good ones more than the so-called bad ones. As between two apples, the one which we desire the more is spoken of as of "good" or "superior" quality. But plainly the goodness or the superiority lies in the relation to our desires. So that quality is partly a matter of inherent differences, and partly a reflection of our desires. Thus if (in Fig. 3) 1, 2, 3, and 4 are apples which are prac tically alike except in one particular—sweetness, for example The shading of the circles indicates differences in physical qualities of objects, as in color, in sweetness, etc. Corresponding with these dif

ferences the values, represented by the columns, range from high to low. If the tops of these columns be connected by a line, its distance above the base line indicates the valuation of each in terms of any one of the others.

—and if we have a preference for sweet apples we are likely to rank them as to value according to their sweetness.

§ 2. Substitution of goods. If now we have an abundance of apples of the greatest sweetness or best flavor, those of in ferior quality will make little appeal to our desires. The best apples have a high value; the poorest have little or none. Be cause of their abundance, or the abundance of the better grades, the apples of inferior quality may even be free goods, lacking in value because not in the smallest degree the objects of desire. If, on the other hand, apples of the finest flavor are few in number, those of the next best grade will become objects of desire, and will therefore have a value for us. We come in this way to attach different values to the different grades. This act of resorting to objects of inferior quality because of the scarcity of the better grades, is substitution of goods. It is but the objective aspect of the shifting in our desires. It is a simple matter, but it has its bearing on the general problem of value. The thing that is fundamental in the valuation of different grades of things is the connection be tween these various grades and the desires of men.

In some years, when the difference in quality between the grades of apples is marked and there is a large crop of the best grade, the small, knotty apples are free goods in the or chards, and are allowed to rot on the ground. In other years, when good apples are scarce, the poorer grades are gathered and are sold at good prices. But if there is an abrupt differ ence in quality between two grades, the value of the better grade may rise considerably before there is any use made of the poorer. The slighter the difference in quality the more quickly appears the effect of the presence of the lower grades in limiting the increase of value of the higher grades.