6. Marginal 'utility and must be evident to the reader that marginal utility and value are very closely related. Indeed, in the foregoing section I have used the word value as if it were almost a synonym of utility. I have said that a man possessing only one shirt values it more highly than if he pos sesses twenty. Here I was using the word value sub jectively to indicate the importance of a unit of a good in the judgment of its possessor. In this subjective sense we value all goods which we are asked to buy or which we /think of producing for our own consump tion. A man who cultivates vegetables for his own table necessarily gives sOme thought to the number of rows that shall be in peas, the number in beans, the number in corn, and so on. Two rows of corn he may value highly, a third row less, while he might decide that the yield of a fourth row -would be of less value to Min. than a row of turnips. By subjective value is meant the importance which man attaches to any object as a means of gratifying. his wants.
But in business, as we have said, the word value means exchange power : the value of a bushel of wheat is what you can get for it in exchange. It is evident that the exchange value of any article is somehow very dependent upon its subjective value or utility to the consumer. Subjective value fixes the maximum above which the exchange value cannot rise. Since all buying and selling is done with money, we can at any time think of value and price as being synony mous and speak of values in terms of money. When we say that subjective values fix the maximum of ex change values, we mean merely that a man will not pay more money for an article than he thinks it is worth to him. If the producer asks a higher price the consumer simply does not buy. He has the last word in the process of bargaining. If he does not like the price he spends his money in some other way, which he believes will yield him greater satisfaction.
Since the marginal utility or subjective value of an article tends to decline as the supply of it increases, it is evident that its exchange value must tend to decline at the same time, for consumers subjectively,.valuing it less, will not buy unless the price is lowered. On account of this fact economists of the ultra psycholog ical school hold that marginal utility and value are virtually identical or at least that the value of an article is the market expression of its marginal utility. As we shall see, this statement is not strictly correct, for we shall find that marginal utility is not the only factor nor the dominant factor in determining the value of a good. In the next chapter we shall dis
cover that the cost of production of the good is equally important.
7. Classes of the reader may ask, "In this world's great and conflicting markets, of what significance is a man eating red apples or a man who owns only one shirt?" What possible bearing can their desires and feelings have upon market prices? The laying out of a garden is simple enough. Any body knows that a man would be a fool if he put in more corn than his family wants to eat, but what has that got to do with the market price of cotton, steel rails, locomotives, Panama hats and automobiles? Simply this. All the bargaining, buying and sell ing and price fixing in the world's markets are deter mined by the same elemental forces which we have described in the man eating apples or the man who had only one shirt. In order that the reader may see the truth of this statement clearly and begin to unravel the apparent snarls of the markets he must first take note of the fact that in any civilized country there are many different classes of buyers or consumers.
In the first place, we may roughly divide consumers into three classes—the rich, the middle class, the poor. A rich man may want an article no more than a poor man and yet be willing to pay a higher price for it because he values money less. Take, for example, a simple article like milk. A one cent advance in the price of a quart of milk will not lessen its consumption in the rich man's family, but it will in many poor fam ilies and many housewives of the middle class will begin to be more economical in its use. Some con sumers of meat consider it a necessary of life and do not stop its consumption even tho its price greatly rises ; an advance of the price drives others to the con sumption of fish, and still others to an increased con sumption of beans, peas and other vegetables rich in proteids.
In the case of all commodities, as dealers and manu facturers know very well, there are different classes of consumers. Some buy liberally Without much regard to the price while others are most sensitive to price changes. Out of cotton are made fabrics of great importance to the poor. People of the middle class and the rich will not increase their consumption even tho the price greatly declines; hence an unusually large crop of cotton in normal times results in the fall of the price out of proportion to the increase in the supply.