We have now studied the history of man's efforts to get a living, and the fundamental conditions which determine all his efforts to that end. We have now to study analytically the process by which he gets his living to-day, remembering that the process is conditioned fundamentally, and that those fundamental conditions have their roots far in the past.

Reason for studying Consumption First. When we inquire why men display what we call economic activity, we discover at once that it is because they have wants which they aim to satisfy. Most immediately connected with wants in any analysis of the subject is the satisfaction of them, and therefore it is not illogical to study first of all that branch of the subject which we have called by the name "consumption."

Definitions. When anything has the power of satisfying human wants, we say that it is a good thing, or that it possesses utility. In economics, these words "good" and " utility " are made to apply to the things or services themselves. To give a definition, therefore, we may say that a good or utility is anything which can satisfy a human want. And here we must pause to caution the student that the word " good " is applied to any such thing even though the thing ministers to a want which were better left unsatisfied. The idea from the economic standpoint is simply that the thing is good in the sense of being adapted to the want, however reprehensible the want may be. Notice that this definition of the term " good " includes not merely material things such as food and clothes, but also such immaterial things as personal services. The advice of a physician and a new invention are goods that we desire and are willing to pay for, but they do not exist in any physical form. Goods or utilities, then, may be divided into the two great classes of (1) material things, and (2) personal services.

Free Goods and Economic Goods. When we come to analyze goods further, we find that some of them are given by nature in such abundance that all of us may have our wants for them satisfied without effort. Thus, air is a utility of the first importance ; but in all ordinary circumstances it is so abundant that we can satisfy our wants for it without any exertion. All such goods are therefore called free goods.

But we find by hard experience that before we can satisfy many of our wants, either we ourselves must make efforts, or others must exert themselves for us. The reason is, that the supply of such utilities is limited either (1) by the impossibility of increasing their number or amount at all, as is the case, for instance, with paintings by old masters, or (2) by the necessity of labor and sacrifice for further increase in their supply, as is the case with watches and houses, and, indeed, with the greater number of things with which we are daily brought in contact.

Inasmuch as these goods are limited in quantity, they can, as a rule, be obtained only by human exertion or sacrifice. And being thus obtained, they can be exchanged or transferred from hand to hand by those who possess them. Of course, many goods land, for instance are of such a nature that they cannot be readily transferred or, in some cases, be actually transferred at all. In such cases, transfer of title takes the place of actual transfer of the goods. Again, it is, of course, impossible for one man to transfer to another any special ability that he may possess. But the services which such special ability may enable one to render may be exchanged for the services of others or for material goods, and we may regard such services as falling in the same class with the other goods which we have been describing. All such goods we call economic goods, because they are the ones which man spends his life in acquiring, and because the wants for them and the efforts and sacrifices made in obtaining them are susceptible of such money measurement as enables them to be the subject of scientific analysis. To sum the matter up in the form of a definition : Economic goods are goods which are so limited in quantity that their possession, on the one hand, regularly requires exertion or sacrifice, and, on the other hand, gives the opportunity of transferring or exchanging them.

When we speak of economic goods taken collectively or in a body, we use the word "wealth," whether the body of such goods be great or small.

Different Kinds of Utility. There are only four ways in which goods can satisfy our wants. In the first place, a good satisfies our wants by virtue of the elements of which it is composed. Thus, coal is so constituted that under certain conditions and in certain relations it produces heat. This utility which a thing possesses by virtue of the elements of which it is composed we call (1) elementary utility.

But the coal as it is in the mine is not ready to satisfy man's wants. It must first be broken up by the miner into such fragments as are convenient for man's purposes. Its form must be changed. This utility which a good possesses by virtue of the form in which it exists we call (2) form utility. Manufacturing gives as its result form utilities, and we generally think of manufactured products when we speak of this kind of utilities.

When the coal has been changed by labor into a form fitted for human uses, it is still necessary to convey it to those who are to use it. The new utility which is given to the coal by moving it from the mine to the place where it is to be used we call (3) place utility.

Finally, this coal which possesses elements fitting it for human use, which has had its form changed by the miner, and which has now been transported to a place convenient for its consumption, is kept until the time when it is to be used. The utility which a good possesses by virtue of its being present at a time convenient to the consumer we call (4) time utility.

Elementary utility, form utility, place utility, and time utility : these, in their logical order, are all the kinds of utility that any goods ever do or can possess. Goods about to be consumed of course have all four kinds of utility ; but in the case of any particular commodity some one utility is likely to be of special importance. Thus, ice in summer has as its most evident utility that of time. In the same way, great place utility is added to tea when it is carried from Japan or Ceylon to the consumer in an American town.

Wealth Consumption. Man satisfies his wants by the enjoyment of these utilities which we have been describing. In many cases enjoyment of such utilities involves their destruction by the person who enjoys them. But there are other things whose utilities are not destroyed by the user, but by the elements. In such cases, the destruction is usually gradual and slow. Thus, a house furnishes its utilities to the user over a long period of years. The direct satisfaction of human wants by the enjoyment of the utilities in goods is called consumption. When goods afford such direct satisfaction only in a single act of enjoyment, they are called perishable goods. Such, for instance, are coal and food. But a house, a book, or a carriage affords satisfaction of human wants in repeated acts of using. To take an extreme instance, land may be made to afford satisfaction of human wants through all time. These are durable goods. Defining, we may say that perishable goods are those that lose their utilities in a single satisfaction of human wants; durable goods are those that afford repeated satisfaction of human wants.

Productive Consumption. Some authors include under the name consumption a destruction of utilities which is designed to result in the creation of new and greater utilities. Thus, when coal, instead of being used in a residence to warm the occupants, is used in the engines of a factory, it is often said that the coal is being consumed productively. If we call such consumption productive consumption, we must use some distinguishing word in referring to a destruction of utilities which satisfies human wants directly. The expression adopted for this purpose is final consumption. But since productive consumption is only a part of the process of production, we may fairly confine the use of the word " consumption " to the final and immediate satisfaction of human wants by the enjoyment of the utilities afforded by goods.

Relation of Consumption to Production. We must, for scientific reasons, keep somewhere a distinction between consumption and production, although, as appears above, the two often shade into each other. Consumption and production are correlative. Consumption furnishes the motive to production. Production affords materials and services for consumption. Consumption makes production necessary at the same time that it makes production possible. To sum up in a word, consumption is the end and means of production, and of all economic activity; production is the means of consumption.


1.Since want satisfaction forms the motive to all economic activity, consumption may properly be made the first division of economic theory.
2.The character and extent of human wants have been progressively changing.
3.Want satisfiers are called utilities or goods.
4.Free goods are unlimited in quantity and cost us nothing; economic goods require economic activity in their getting and using.

5.There are four kinds of utility : elementary, form, place, and time.
6.Consumption is the use of goods in the final satisfaction of human wants.
7.Consumption is the end and means of production; production is the means of consumption.


1.Why is consumption first studied ?
2.What is a utility? Illustrate. What are free goods? Illustrate. What are economic goods? Illustrate. Is water ever an economic good ?

3.Give examples of elementary utility; of form utility; of place utility; of time utility. What utility does the miller produce? The railway? Explain the fallacy in the statement that the farmer is the only producer.
4.Give examples of perishable and durable goods.
5.Why cannot the name consumption be applied to the use of corn in fattening hogs ? In what sense is coal burned in a factory furnace consumed ? Is the consumption of food by laborers final or productive consumption ? Explain.