§ 1. Inherent physical nature of things. § 2. Free goods and economic goods. § 3. Harmful objects. § 4. Value and true welfare. § 5. Gratification of desire. § 6. The idea of income. § 7. Psychic income. § 8. Motivating force of psychic income. § 9. The personal equation in psychic income. § 10. Desire streams and income streams. § 11. Goods of direct use. § 12. Directness of use defined.

§ 1. Inherent physical nature of things. Man has to take the physical nature of things as he finds it. He can, to be sure, make certain changes in the relative positions of particles or masses of matter. He can decompose a chemical compound into its elements; he can change iron into steel, and with this construct elaborate machinery; he can make clothing of vegetable fiber; he can cut a canal through an isthmus that united two continents. He can, in short, make many changes in his physical environment and, within limits, he can adjust it to his liking. But the physical and chemical forces of the world, acting in ways which we express as natural laws, are beyond the power of man to change. He may rise above the earth in a balloon, or even travel through the air in a heavier-than-air machine. But the force of gravitation is acting upon him during every moment of his flight. Material things differ in their specific gravity, in their power to reflect rays of light, or to absorb or transmit heat. They differ also in their chemical qualities. Niter, charcoal, and saltpeter, combined in certain proportions, form an explosive. Other proportions give other results. Solids combine to form gases and liquids unite to form solids, and these qualities and reactions of material things are for men ultimate truths of chemistry. Sunshine acts on living bodies, whether plant, animal, or man, in certain ways. Some plants are nourishing food for animals, others are poisonous. If man were not living on the earth, things would, so far as we can conclude, have the same physical and chemical qualities, and mechanical laws would be the same as at present. They are not governed by the will of man. Man can, however - and does - slowly learn the nature of things, and as he does so he makes choices among them, uses them for his purposes, combines, separates, and adapts them so that he may better bring about the results he desires. The fitness of things for accomplishing man's desires is what makes them objects of choice.

§ 2. Free goods and economic goods. We have already seen that some things, even such as are indispensable to existence, may yet, because of their abundance, fail to be objects of desire and of choice. Such things are called free goods. They have no value in the sense in which the economist uses that term. Free goods are things which exist in superfluity; that is, in quantities sufficient not only to gratify but also to satisfy all the desires which may depend upon them. The air about us is ordinarily a good of this kind. Water, too, tho in certain places and at certain times where it is scarce it takes on a value, is in many places so abundant that it falls in the category of free goods. The same is true at certain times and places of firewood, fruits, and other things, when there chances to be a surplus, relative to the desires of men. In such cases both the portions which are used and the other portions are without value - are free goods.

There is always something puzzling about this as one begins to think about it. It seems unreasonable to say that diamonds, laces, cigarettes, have value, and air and water have not. But the explanation is simple. Tho we must have air to live, and tho every breath we draw is to supply this need, our attention need not ordinarily be given to the matter of the supply of air at all. So long as it is present in abundance, the desire for it has no chance to rise to noticeable intensity, and remains constantly at the zero point. Men do not concern themselves about that which they have in superfluity -unless indeed the excess causes them some discomfort. It is well that they do not, for a wise direction of effort can take place only when men think mainly of the things that are lacking and direct their efforts toward securing them.

Most kinds of enjoyable things are constantly being used up before every use dependent on them can be made. Our stocks of such things become therefore the objects of our choice. We strive to use them with some care and attention. Such goods are called economic goods, being the goods which have value and therefore must be economized. As we have already seen, a certain thing may be a free good at one time because of its abundance and at another time it may be an economic good because of its scarcity.

§ 3. Harmful objects. Beyond the boundary of economic goods and of free goods there lies an anti-economic environment, the harmful: destructive lightning, floods, poisons, vermin, pests of locusts, disease-breeding swamps, wild beasts, human enemies, and many other ills of earth. "While some water continues to be "a good," other water may be "an ill," flooding one's cellar, or soaking one's clothes on a cold day, or breaking through the walls of a mountain reservoir and carrying death and destruction in its path. Pure air may come as a tornado, fire may destroy our dwelling, growing woods may cover the fields needed for tillage, iron may crush the foot or cut the hand. And so, anything may become harmful, while in turn the "harmful" may become useful. Poison helps rid the house of vermin, disease germs may be made to serve as antitoxins, noxious weeds may, by the discovery of some new process, be worked into useful forms, tho they may still continue to be harmful in many a farmer's field.

§ 4. Value and true welfare. It will be noticed that the things that are valued, the things that we call economic goods, are things that have a relation to the choices or desires of men. It must not be thought, however, that they are of necessity conducive to real welfare, either generally or permanently, as the term " good"" might seem to imply. In many cases they may be so, but what shall we say of the pistol which the highwayman points at his victim, or of the poison with which the lunatic kills his friend, or of the opium for which the miserable victim would give his birthright, or of the whisky which is ruining the happiness of the drinker and of his family? For the individual these things, being the objects of choice and desire, have value, and the term "economic goods" has been extended to cover things of this sort. The economist, however, must not overlook the injurious results of such uses, and in his final judgments on economic welfare must endeavor to see a larger good than that of the moment and of the individual desire.

The term utility properly expresses the idea of this fitness (a quality) of things to conduce to real welfare quite apart from the subject's knowledge at the time of his choice. This is in accord with usage as well in biology (for example, in discussing the utility of certain organs) as in the moral sciences (for example, in studying the utility of certain institutions). We should beware of the very frequent confusion of the terms value and utility, and throughout we shall connect the idea of value with choice and not with utility. Later, in considering the more lasting effects that wealth has, either upon the individual or upon society, utility has its place.