1. Utility, in its broadest usage, is the general capability that things have of ministering to human well being. The term is evidently one without any scientific precision. It expresses only a general or average impression that we have in reference to the relation of a class of goods to human wants. Every one would agree to the statement that" water is useful," thinking of the fact that it is indispensable to life and that it ministers to life in a multitude of ways. But what of water in one's cellar, water soaking one's clothes on a cold day, water breaking through the walls of a mountain reservoir and carrying death and destruction in its path? The poison that is doing what we at the moment desire, we call useful; that doing what we would prevent, we call harmful. Noxious weeds become "useful" by the discovery of some new process by which they can be worked into other forms, though they may still continue to be noxious in many a farmer's fields. The utility of anything, therefore, is seen to be of a relative and limited nature. The term "utility" in popular speech is very inexact. It can be employed in economic discussion only when carefully modified and defined.

Popular meaning of useful.

2. Goods consist of all those things objective to the user which have a beneficial relation to human wants. They fall into several classes. We may first distinguish between free and economic goods. Free goods are things that exist in superfluity, that is, in quantities sufficient not only to gratify, but to satisfy all the wants that may depend on them. Economic goods are things so limited in quantity that all of the wants to which they could minister are not satisfied. The whole thought of economy begins with scarcity; indeed, even the conception of free goods is hardly possible until some limitation of wants is experienced. Practical economics is the study of the best way to employ things to secure the highest amount of gratification. The problem itself arises out of the fact that many things are used up before all wants dependent on them are completely satisfied. A distinction is often made between consumption and production goods, or it may be better to say immediate and intermediate goods. Consumption goods are those things which are immediately at the point of gratifying man's desires. Production goods are those things which are not yet ready to gratify desires; some of them, being merely means of securing consumption goods, never will themselves immediately gratify desire.

Kinds of goods.

Value is utility given precision.

3. Value, in the narrow personal sense, may be defined as the importance attributed to a good by a man. The vagueness and inexactness of the word "utility," or the word "good," disappears when we reach the word "value." It is not a usual relation or a vague degree of benefit sometimes present and sometimes absent, but it refers to a particular thing, person, time, and condition. Value is in the closest relation with wants, and in this narrow sense depends on the individual's estimate. From the meeting and comparison of the estimates of individuals, arise market values or prices, which are the central object of study in economics.

Questions On Chapter 3. Wealth And Welfare

1. What is it to be economical of money?

2. Why did Crusoe work at all?

3. When he began to work at one thing, why did he ever stop to work at another?

4. What is the difference in utility between the water in a solid mountain reservoir and the same water when it is flooding the valley?

5. Does it change the utility of a load of powder to touch a match to it?

6. Is water useful? Is dynamite?

7. Is the last bait worth more when the fish are biting well?

8. Are the following wealth: food, tobacco, medicine, whisky, good looks, good health, a wooden leg?

9. Is a book full of useful information, wealth? Is a head full of useful knowledge, wealth?

10. Is a ship at the bottom of the ocean, or gold in the mine, wealth?

11. Is well-being in proportion to wealth? Why?

12. Are services, music, a theatrical performance, a gambler's pack of cards, wealth?

Note

The theory of marginal utility broadly outlined in chapters 3-5 has been worked out in detail by the group of writers called the Austrian economists. The mechanism, or the technique, of marginal utility and exchange as they conceive of it, is essentially what this text seeks to explain. Our application and development of the conception of marginal utility differs from theirs, however, in ways that will appear as the text advances.

For more detailed discussion of many points in chapter 3, see Smart, Introduction to the Theory of Value, pp. 9-17; Wieser, Natural Value, pp. 3-16; Bohm-Bawerk, Positive Theory of Capital, pp. 129-153.