Chapter VIII

we saw how difficult it was to establish any clear relation between the rate of interest and the sacrifice of saving. The costs of labor present similar difficulties. The relative irksomeness of two occupations may affect the relative wages which will rule in the two cases; so, certainly, will the differences in the cost of education and training which they require. But these are matters which concern the _apportionment_ of labor between different employments. There is no good reason to suppose that the general wage-level would be reduced, merely because work as a whole became less irksome, or involved a smaller physical or mental strain. The supply of people is not determined by the same kind of influences as is the supply of a commodity. Parents do not produce children for the sake of the wages which the children will receive when they go out to work; or, if this happens, we rightly regard it as a horrible anomaly. In so far as parents are affected by economic conditions it is by their own economic conditions; the question is rather one of how many children they can afford to have, than of a balancing of the cost to them against the incomes which their children may subsequently acquire. But other considerations enter in; and, in fact, it is doubtful how the aggregate supply of labor will react to changes in prosperity. Finally, the supply of land involves neither effort nor sacrifice; and, among our money costs, we have to account for the item of the rent of land. To dispose of this difficulty by arguing that rent does not enter into marginal costs (in any sense which is not equally true of wages and profits) is to lose contact with reality. Thus the attempt to explain money costs in terms of the costs of producing the ultimate agents of production leads us into a quagmire of unreality and dubious hypothesis. For a systematic theory, which will rest on firm foundations, we must interpret money costs in very different terms.

The real costs which the price of a commodity measures are not absolute, but comparative. Marginal money costs reduce themselves in the last analysis to the payments which must be made to secure the use of the requisite agents of productions. These payments _tend_ to equal the payments which the same agents could have commanded in alternative employments. The payments which they could have commanded in alternative employments, tend in their turn to equal the derived marginal utilities of their services in those employments. It is thus the loss of _Utility_ which arises from the fact that these agents of production are not available for alternative employments that is measured by the money costs of a commodity at the margin of production.

This conception of ultimate costs encounters an instinctive repugnance, arising from a mistaken sense of logical symmetry, which it will be well to examine. Cost, it is objected, so interpreted loses its character as an independent entity. It is merely something derived from utility. Now in the earlier chapters of this volume, we found reason to be impressed with the general symmetry which pervades the relations of demand and supply. Moreover, when we considered the case of ordinary commodities we found that at the back of demand and giving rise to it was utility; at the back of supply, and limiting it, was cost. The general symmetry between demand and supply thus seemed almost to imply a fundamental symmetry between utility and cost. If, then, cost in the last analysis is derived from utility, does not this make nonsense of the symmetry between demand and supply, or, if we cling to this last symmetry as a demonstrable truth, must we not refuse to admit that cost can be derived from utility?

This is one of those false dilemmas which supply the wiseacres of the world with a plausible case for distrusting the logical faculty. If we have good reason for believing that both of two apparently inconsistent things are true, the explanation is seldom that one of them is really false; it is more usually that they are not really inconsistent. So it is here. The symmetry between demand and supply is very great, and we should always look to see if it holds good, but it is by no means perfect, and it is in the last analysis that it most notably fails. It is most important to distinguish clearly between the utility and the cost of a commodity as two separate and independent things. In