Choice between Different Uses of the Same Thing.Immediate and Deferred Uses.
1.The primitive housewife finding that she has a limited number of hanks of yarn from the year's shearing, considers all the domestic wants for clothing and tries to distribute the yarn between them in such a way as to contribute as much as possible to the family wellbeing.She will think she has failed if, when it is done, she has reason to regret that she did not apply more to making, say, socks, and less to vests.That would mean that she had miscalculated the points at which to suspend the making of socks and vests respectively; that she had gone too far in the case of vests, and not far enough in that of socks; and that therefore at the points at which she actually did stop, the utility of yarn turned into socks was greater than that of yarn turned into vests.But if, on the other hand, she hit on the right points to stop at, then she made just so many socks and vests that she got an equal amount of good out of the last bundle of yarn that she applied to socks, and the last she applied to vests.This illustrates a general principle, which may be expressed thus: --If a person has a thing which he can put to several uses, he will distribute it among these uses in such a way that it has the same marginal utility in all.For if it had a greater marginal utility in one use than another, he would gain by taking away some of it from the second use and applying it to the first.(1*)One great disadvantage of a primitive economy, in which there is but little free exchange, is that a person may easily have so much of one thing, say wool, that when he has applied it to every possible use, its marginal utility in each use is low: and at the same time he may have so little of some other thing, say wood, that its marginal utility for him is very high.Meanwhile some of his neighbours may be in great need of wool, and have more wood than they can turn to good account.If each gives up that which has for him the lower utility and receives that which has the higher, each will gain by the exchange.But to make such an adjustment by barter, would be tedious and difficult.
The difficulty of barter is indeed not so very great where there are but a few simple commodities each capable of being adapted by domestic work to several uses; the weaving wife and the spinster daughters adjusting rightly the marginal utilities of the different uses of the wool, while the husband and the sons do the same for the wood.
2.But when commodities have become very numerous and highly specialized, there is an urgent need for the free use of money, or general purchasing power; for that alone can be applied easily in an unlimited variety of purchases.And in a money-economy, good management is shown by so adjusting the margins of suspense on each line of expenditure that the marginal utility of a shilling's worth of goods on each line shall be the same.And this result each one will attain by constantly watching to see whether there is anything on which he is spending so much that he would gain by taking a little away from that line of expenditure and putting it on some other line.
Thus, for instance, the clerk who is in doubt whether to ride to town, or to walk and have some little extra indulgence at his lunch, is weighing against one another the (marginal) utilities of two different modes of spending his money.And when an experienced housekeeper urges on a young couple the importance of keeping accounts carefully., a chief motive of the advice is that they may avoid spending impulsively a great deal of money on furniture and other things; for, though some quantity of these is really needful, yet when bought lavishly they do not give high (marginal) utilities in proportion to their cost.And when the young pair look over their year's budget at the end of the year, and find perhaps that it is necessary to curtail their expenditure somewhere, they compare the (marginal) utilities of different items, weighing the loss of utility that would result from taking away a pound's expenditure here, with that which they would lose by taking it away there: they strive to adjust their parings down so that the aggregate loss of utility may be a minimum, and the aggregate of utility that remains to them may be a maximum.(2*)3.The different uses between which a commodity is distributed need not all be present uses; some may be present and some future.A prudent person will endeavour to distribute his means between all their several uses, present and future, in such a way that they will have in each the same marginal utility.But in estimating the present marginal utility of a distant source of pleasure a twofold allowance must be made; firstly, for its uncertainty (this is an objective property which all well-informed persons would estimate in the same way); and secondly, for the difference in the value to them of a distant as compared with a present pleasure (this is a subjective property which different people would estimate in different ways according to their individual characters, and their circumstances at the time).
