This section is from the "Economics In Two Volumes: Volume I. Economic Principles" book, by Frank A. Fetter. Also available from Amazon: Economic
§ 1. The principle of proportionality; its general nature. §2. Coat and sacrifice defined. § 3. Sacrifice of effort a matter of proportion. § 4. Sacrifice involved in common use by several users. § 5. Gross and net uses. § 6. The doctrine of separable uses. § 7. More intensive utilization. § 8. More extensive utilization. § 9. Application of complementary agents at the two margins. § 10. The principle of proportionality in agriculture. § 11. Intensive use of ground space. § 12. Intensive use of tools and machinery. § 13. Intensive development of water power. § 14. Bearings of the principle.
§ 1. The principle of proportionality; its general nature. In what has been said in regard to scarcity as an element in value (Chapter 2) it was implied that value involves, in the simplest case of direct or immediately enjoyable goods, a certain proportionality between goods and the desires of men. The more abundant are goods, relative to the desire for them, the less is their value. Similarly, in connection with the principle of evaluation (Chapter 4), we encountered, in the relations between the stimuli and the reactions of the nervous system, a certain quantitative relation, or principle of proportionality. In the whole process of trade, also (Chapter 5, Trade by Barter), which is the adjusting of a ratio between two or more goods in a group of traders seeking to buy and sell, an element of proportionality is plainly involved. And still later (in the last three chapters, 9-11) in discussing the improvement of productive processes we have touched upon the important problem of proportionality in the use and development of indirect agents. We saw that the development of new inventions, new processes, etc., was largely a matter of bringing things together in the most effective way - that is, in the best proportions for the accomplishment of certain physical, mechanical, chemical, or other desired technical results.
§ 2. Cost and sacrifice defined. In our evaluations there are usually certain negative items variously referred to as cost or as sacrifice. In its broadest sense cost may be defined as that which must be given up to get another thing. This is its original, and still general, meaning. This would include, on the one hand, sacrifices of a purely psychic nature - disappointments, regrets, etc., caused by doing or by giving up a thing; and, on the other hand, the prices of things-whether expressed in money or in other goods. Usually, however, in business the word cost is given a more specialized meaning, and we shall take this in order to distinguish it from price in general on the one hand, and from sacrifice on the other. In this narrower connotation cost means the outlay (considered as a business expense and expressed in money terms) which a person must make in order to obtain a certain product from goods. Sacrifice may be defined as that less definitely measured, psychic, alternative good (whether of enjoyment or of freedom from effort) which must be given up to get another good. Finally, price is the good surrendered in a trade with another person.
Sacrifice is involved in every choice and in every price in barter or sale; but cost, in this business man's sense, only when the outlay for a good up to date is compared with its value or with its selling price.
§ 3. Sacrifice of effort a matter of proportion. In the case of complementary agents (see Chapter 4, section 5) the valuation of each in any particular use is constantly affected by the valuation of the other. This always involves a problem of proportionality. The simplest case is presented by the use of one's time and labor in getting enjoyment from a direct good. The sacrifice of time and labor are outlays which have to be balanced against the gross or total advantage afforded by the good. It is a sort of offset or deduction, and the real or net service or psychic income is the resultant of the action of the two complementary goods, the man's effort and the material object. A piano is capable of being played upon steadily for twenty-four hours a day, but the player becomes weary after two or three hours, and values the uses of the piano for the rest of the day at zero. These uses must go for nothing if the piano is not played, but they are to be realized at too great a sacrifice. A case of this kind is presented whenever any durable agent in the owner's hands is capable of affording additional uses which as a matter of fact are not availed of. Such uses lie beyond the boundary of economic utilization, for the owner has not the time to use them - or the energy, or the present desire.
Riches and poverty affect the estimate of sacrifice involved in the use of goods. The more highly the person is able to value his own time, because of his riches, income, etc., the more highly he values the earlier uses of duplicates to save his time, and the less highly he values the later uses of goods which tax his time. Each article in the scanty belongings of the poor is used a great deal; each article in the abundant belongings of the rich is used very little, and the goods of the middle class occupy positions ranging between these extremes.
§ 4. Sacrifice involved in common use by several users. It often may happen that the further uses contained in goods may be taken by another person, possibly by several, each of whom may bring to the use his freshest powers. This may enhance the usefulness of the good, but again sacrifice may result from the inconvenience of common use, and sooner or later the outlay-value exceeds the gross income-value of the uses thus secured. A book stands many hours untouched on the shelves of the library; it has potential uses for some one during every minute of the twenty-four hours but they can be secured only with inconvenience. When, as often happens, two or more persons wish to use the book at the same hour, time and energy are wasted. The greatest net uses, therefore, are seen to be to the first user and in the first hour, for these uses cost the least time and trouble. If the members of a family will take turns, one chair will serve for all of them; but if all are to be able to sit down together, a chair must be provided for each. Often it will happen that only one chair is in use, the other nine chairs being valued only for their potential uses. I knew two young men who owned a dress-coat in partnership, and as they had different evenings free from business all went well until both were invited to a reception which both were very eager to attend. In tenement houses there are sometimes let to lodgers beds or bunks that are never allowed to get cold, men working in the day occupying them by night, and men working by night sleeping in them by day.
§ 5. Gross and net uses. In cases of this kind each use of the chair, or the book, etc., is technically the same as every other use, but economically these uses must be looked upon as a series of unlike valuation-magnitudes. The value of each use is a net amount resulting from subtracting the outlay from the income-value. Even if the income-values remained undiminished by bringing in new uses, the outlay-values would be increasing, and the net use-value corre-fig. 20. gross and net Uses. spondingly lessening. A point is reached where the net value of the use falls to zero. Thus in Figure 20 if on the line BB7 be represented the height of successive gross uses and on the line CB7 the height of the successive outlays, net uses are B1C1, B2C2, etc., until at B7 there is no further net use.