Chapter I

, is unco-ordinated. That co-operation has been evolved by the mutual competition of innumerable business concerns, controlled by men largely animated by the motive of pecuniary profit. But it has not been evolved wholly by such means: and how far that competition or that motive of profit is essential to its efficiency are questions with which this volume has not been in any way concerned. The economic laws, the relations between utility, and price and cost, with which it has been occupied, are an entirely different matter; and these _are_ essential to the efficiency of any system of society. For if the marginal utility of a commodity is equal to its marginal cost, and if this marginal cost is composed of payments to the various agents of production at least as great as they could have obtained if they had been used otherwise, this amounts to saying that the agents of production are so utilized as to yield the maximum utility; and this is the same thing as saying that they are so utilized as to produce the maximum wealth.

§3. _Utility and Wealth_. Upon this last point it is important to be quite clear. An increase in wealth seems a solid, tangible reality; something, which, however much we may scorn it in our more precious moods, we recognize, for a rather poor community, to be an important object of endeavor. But an increase in utility seems a vague, impalpable notion, hardly deserving the same practical concern. None the less the two things are identical. We greatly deceive ourselves if we suppose wealth to be an objective reality. It is true that, when we get behind the money in which it is measured, we come upon commodities, like food and clothes and houses and factories, which seem comfortably solid and objective things; but we also come upon many services, like those of gardeners and doctors and hospital nurses, which we are bound to reckon as part of our wealth, although they are not embodied in any tangible commodities. Moreover, although material commodities are objective realities in themselves, and in many of their properties, they are _not_ objective realities in their property as wealth. A pair of boots is an objective fact; so is the number of pairs in existence at any time, so is their size, their weight, the quantity of leather or of paper which they happen to contain. But the wealth which those boots represent is not an objective fact. It depends upon the opinion which men and women entertain as to their utility; and these opinions take us into the subjective regions of human psychology. Let us suppose, for instance, that we calculated, on the basis of present prices, that the boots in existence at the present time represented 1/1000 part of our total wealth. Suppose, then, that a miracle were to happen; that the skies opened and rained boots upon us, of every size and shape and pattern, until we had 1000 times as many boots as we had before. Could we say that our total real wealth had been doubled? Clearly we could not. To obtain boots for nothing, and to wear a new pair every week, would make us somewhat better off, but not twice as well off as we were previously. In other words, the real wealth of a thousand times as many boots as we have now, is not a thousand times as great as the wealth of the present number of boots. We are, indeed, practically restating the Law of Diminishing Utility; and this perhaps is enough to show that wealth is fundamentally the same thing as utility.

Another point, however, is worth noting. Our real wealth would be somewhat increased in the case supposed; but if we were to turn to the money measure of wealth, the opposite result would be far more likely, For the price of boots would most likely fall to nothing, and the total value of boots, in the commercial sense, would accordingly be nothing also. This shows that money values may be a most imperfect measure of aggregate wealth; for what money values represent is the product of the quantity of the commodity and its _marginal_ utility, while aggregate wealth is _total_ utility, which is a very different thing. This, it may be observed, makes all attempts to compare the wealth of different countries or different times, and no less to construct Index Numbers of Prices, imperfect of necessity, and arbitrary in their foundations.

§4. _Criteria of Policy_. The point has now been reached at which we must take into account the very important fact which was mentioned at the close of