Consumption (Economics); Prices; Supply and demand
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 Chapter III. The maximum utility which the laws of
supply and demand tend to bring about is a maximum _total_ utility
indeed, but one still measured in terms of money. An unequal
distribution of wealth destroys any necessary correspondence between
that and the maximum _real_ utility. This consideration, however, does
not affect the general validity of the conclusion that the laws of
supply and demand represent what is socially desirable now or under
any system. For what is at fault here is the distribution of wealth;
and it is that which should be changed, in so far as it is possible to
do so. Now it is important to realize that whenever it is possible to
supply a commodity to poor people below cost price, it is possible to
alter the distribution of wealth, for that in effect is what is
done. Purchasing power, which may be taken from richer people by
taxation, or which may be obtained from "collective" profits on other
trading, is in effect transferred to the poor people in question,
though the transference is coupled with the condition that the
purchasing power must be expended in a particular way. It is _in
general_ desirable that the transference should be made without this
condition being attached. To this general statement, exceptions indeed
exist so numerous and important as possibly to justify a great
extension of social expenditure of this type. Education should
certainly be provided free of charge, there are strong arguments for
subsidizing housing; the provision of milk to expectant mothers, the
feeding of school children, such instances can be multiplied into a
very extensive list. But it is important to observe that in each case
the justification of the policy rests in the presumption that the
service supplied is one which it is particularly important that the
beneficiaries should have, _as compared with_ the other things upon
which they might have preferred to expend the equivalent purchasing
power, had it been transferred to them without conditions.
Public-domain text, read in full here on John Shaqi.
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