VALUE 47 measure obtained in exchange may be called the final utility of the stock purchased. A will have done his best if these utilities are just equal. For at this point, if he were to offer (at the same rate of exchange) more corn, it is clear that he would lose more utility than he would gain. Mutatis mutandis, the same reasoning applies to B ; and thus the rate of exchange will be so adjusted as to bring about this equality of final utilities on both sides. 1 It follows that, if A gains on the last portion received just as much utility as he loses on the portion parted with, on all the other portions received he will have gained more than he lost. The total of these gains over successive portions has been called by Prof. Marshall consumer s rent. However useful this theory of final utility may be in throwing light on the fundamental nature of value, and on the advantages of exchange, it is obviously too abstract to be applied to the explanation of the relative values of the endless series of commodities and services which constitute a nation s stock of valuables at any time. For this pur pose we must resort to the law of supply and demand, which requires a very careful statement owing to the ambiguities of popular language. Mill has succeeded in getting rid of most of these ambiguities, but he has hardly given due emphasis to the fundamental character of the law. He argues, after the brief consideration allotted to the element of utility, that the other preliminary condition necessary for value difficulty of attainment is not always the same kind of difficulty, and he arrives at three distinct laws of value, according to three forms or degrees of this difficulty. (1) In the first place the difficulty may consist in an absolute limitation of the supply, and in this case the corresponding law is said to be the law of supply and demand. Even on Mill s view the class of commodities which comes under this heading is both large and im portant, for it includes not only the favourite examples of old pictures, china, &c., but also land, and especially building sites in large cities. Again, it is pointed out that, although comparatively few commodities may be absolutely limited, almost all commodities may be so locally and temporarily, which is really only another way of saying that the law of supply and demand governs all market values ; for it is obvious that the supply actually forthcoming or obtainable in a specified time in any market is limited, a point which may be well illustrated by the extreme case of a "corner." Again, under certain circum stances the supply may be artificially limited, as in the case of monopolies, a typical example being the destruction by the Dutch of some of their spice, in order that the limited quantity might sell for a total higher price. Besides all these important instances of the operation of the law of supply and demand, Mill is compelled also to bring under the same law the wages of labour, the values of the staples of international trade, and some other peculiar cases of value. In fact, step by step he is almost forced to the conclusion, now generally accepted, that the law of supply and demand is the fundamental law of value, of which the other laws are only particular cases. At the outset, however, he appears to consider the two others as of co-ordinate importance. (2) When the diffi culty of attainment consists not in the absolute limitation but simply in the fact that the article requires labour and capital to produce it, the normal or natural value is said to be determined by the cost of production. (3) In the last case taken by Mill it is supposed that an article can be increased in quantity, but only at an increasing cost, and in this case the corresponding law of value is the cost of production of that portion which is obtained under the most unfavourable circumstances. These three laws of 1 For a full account of the theory of which only the principles are here indicated, see Jevons, Theory of Pol. Econ., London, 1871. value may now be examined critically and their mutual relations discussed, for the last two, if not properly of co ordinate importance with the first, are at any rate wide generalizations. In order to understand the law of supply and demand, Law of it is best to take separately the general law of demand and supply the general law of supply, and then effect a combination. and *? e ~ Demand must be defined as the quantity of any article m< demanded at some particular price, it being assumed of course that the bidder of the price can meet his engage ments, or, as is sometimes said, that the demand is an effectual demand. It is quite clear that by demand we cannot simply mean desire to possess, because in a sense every one desires everything, and the less the means of payment so much greater in general is the desire. Again, it is obviously necessary to insert the qualifying clause "at some particular price," because, as a rule, with a change in price a different quantity will be demanded. It is, indeed, this variation of quantity demanded, according to variation in price, which gives rise to the statement of the general law of demand, namely : As the price of any Law of article falls, other things remaining the same, the quantity demand, demanded increases, and, conversely, as the price rises the quantity demanded decreases. A very good example of this law is found in the effects of the remission of taxes. The repeal of a tax leads to a fall in price and the fall in price is accompanied by increased consumption. Conversely, it has often been found that to increase the amount of a tax does not increase the revenue from it, because the demand for the article falls off. The precise connexion between the price and the quantity demanded differs in different cases, and, strictly speaking, is probably never the same for any two commodities. At the same time, however, com modities may be placed in large classes according to the general character of the variation. The variation of quantity demanded according to price will ultimately rest on the principle of final utility explained above. A person with a limited amount of money to spend will hit the economic mark in the centre if the final utilities of his several purchases are equal. This is a rather technical way of saying that a prudent man will not spend a penny more on any particular thing if the penny spent upon some new object would give him a little greater satisfaction. Reverting to the variations of demand according to price, a contrast will at once be observed between necessaries and luxuries. However much the price rises, so long as people have the means they must consume a certain amount of necessaries, but, however much the price falls, the limit of consumption of bread, for example, must soon be reached. On the other hand, a great fall in price of many luxuries may cause an enormous increase in the demand, whilst a great rise may almost destroy the demand. A great deal of light might be thrown on many interesting problems in the progress of a nation and of its various component classes, if the laws of demand, or the statistics of consump tion according to price, were obtainable. Turning to the element of supply, this term in a similar Law of way may be defined as the quantity offered for sale at supply. some particular price, and the general law of supply may be stated thus : As the price rises, other things remaining the same, the quantity offered tends to increase, and, con versely, as the price falls the quantity offered tends to diminish. Expressed in this manner, supply appears to be exactly analogous to demand, and the analogy seems to hold good even when we push the analysis up to the utility to the seller as compared with the utility to the buyer. For, as the price rises, the seller will obtain greater iitility, and will thus retain less for his own use or will be in duced to produce more. On closer inspection, however,
the law of supply is found to be not so simple as the law