1. The greater the income, the smaller the relative percentage of outlay for subsistence.

2. The percentage of outlay for clothing is approximately the same, whatever the income.

3. The percentage of outlay for lodging or rent, and for fuel and light, is invariably the same, whatever the income. 4. As the income increases in amount the percentage of outlay for sundries becomes greater.

The reader will perceive that if Engel's table, published in 1857, had been constructed in recent years, somewhat different limits would have to be set for "middle class " incomes even in Germany.

Subsequent investigations in the United States have confirmed in a general way the conclusions of Engel, but the correspondence is not exact, as will be seen from Table II, from the reports of the United States Bureau of Labor, summarizing the expenditure of over two thousand families in 1891 and over eleven thousand in 1903.

L

Table III gives the results of a careful study of the budgets. of 383 families in New York.

TABLE II

EXPENDITURES OF AMERICAN FAMILIES INVESTIGATED BY THE UNITED STATES BUREAU OF LABOR

(From the Seventh [1891] and Eighteenth [1903] Annual Reports)

m

d

Consumption and Sacrifice. Over against the enjoyment. resulting from wealth consumption lies the discomfort of wealth. production. Enjoyment, we have seen, grows less and less as the consumption of a particular good is continued, but the irksomeness of producing it, on the contrary, grows greater and greater the longer labor is continued. Let us take the case of

FIG. I

Robinson Crusoe picking berries. We may represent the diminishing utility of the berries to him by the line ab (Fig. 1), and the increasing irksomeness of picking them by the line cd.

Per cent Per cent Per cent Per cent Per cent Per cent Per cent Per cent

He would not pick more than Ox, because the xth berry costs him just as much pain as it yields him pleasure, and any further continuance of gathering fruit would result in an excess of pain. The degree of utility represented by mx, then, represents, at the moment that the xth berry is picked and eaten, both the marginal utility and the marginal disutility, or marginal pain or sacrifice.

Each of us has sometimes made such comparisons balancing the pleasure of further consumption against the pain of further production. Many persons who are working eight or ten hours a day could increase their income somewhat by working twelve hours, but the additional discomfort is greater in their estimation than the additional fruits of their labor would be worth. To be sure, much of our economic action goes on unconsciously. We accept a position, comparing its advantages and its disadvantages in a general way with those of other openings, but once we enter upon the work, we accept the daily grind as inevitable, and, in spending our income, think

1 R. C. Chapin, The Standard of Living in New York City, p. 70.

not of the sacrifices it has cost us, but simply of how we can get the maximum satisfaction from it.

In discussing future wants we saw that postponing the consumption of goods from the present to the future came to require compensation only after a certain amount had been saved. Under present methods of production, it was explained in the preceding chapter, a large amount of this postponement of consumption is required. Machines must be made, and the result of this labor cannot be enjoyed until these machines have been used up in making finished products. This means that some one must wait for the result, and in many cases be paid to do it. Thus production may require, in addition to compensation for labor, a payment for waiting. This is a point. which will be discussed further in the chapter on interest. Cost of Production, Expense of Production, and Opportunity Cost. The preceding paragraphs explain one important sense in which the term "cost of production" is used, i.e. (1) the subjective cost of irksome labor or reluctant waiting. But (2) the phrase is also commonly used to refer to the expense of production, that is, the amount of money spent in producing a commodity. (3) A third meaning is also found, which has been termed opportunity cost. Let us say that a person is confronted by the alternative of engaging in either of two occupations. He may become a lawyer or he may become a merchant, but he has not the time to be both. If he chooses to be a lawyer, he sacrifices his opportunity of being a merchant. Cost in this sense is sometimes called "alternative cost," or "displacement cost." This is not an ultimate cost, but it probably has a more direct and more important influence upon most of our economic choices and decisions than has any other kind of cost. Moreover, in the actual conduct of life opportunity cost and direct cost are generally inextricably blended. The increasing irksomeness of Crusoe's task of picking berries, for example, may be deemed to have been caused in large measure by the pressure of other demands upon his time. We haven't time enough to do all the things we should like to do, and so we have to apportion our time according as we think that one use of

it or another is the more important. And, in general, we try so to apportion our time that the fruits of the last or marginal increment of time devoted to any one purpose shall have no more or no less utility than those of the marginal unit of time. devoted to any other purpose.

Taking "leisure" as a collective name for all of the noneconomic uses of time, that is, for all uses of time for other than productive or money-making purposes, it appears clearly that a worker with free command of his time will carry his chosen line of effort up to the point (or margin) where leisure attracts him as much as the products of his exertion, or, in modern economic life, as the things he can acquire with the money he earns. As in the expenditure of money, so in the expenditure of time and effort: we tend to bring our expenditures up to margins where utilities gained and utilities sacrificed or foregone are equal.

QUESTIONS AND EXERCISES

1. If you had four sacks of corn all alike, could you tell which is the marginal one?

2. May one properly speak of the marginal utility of an indivisible good,— a house, for example?

3. If an individual estimates his present wants as 10, 8, 6, 3, 1, and his future wants as equivalent to the present value of 9, 7, 5, 2, o, and if he has $9, and if each want is satisfied with $1, how many dollars will he save? 4. Give as many expressions as possible that are equivalent to the term "subjective value."

5. Comment on the following: "Doubtless the best thing to do about them (the spendthrifts) is to do nothing not even to worry about their waste of money. Their waste of money, in fact, is the least silly thing they do, for the money is in constant flux and serves its purpose." World's Work, June, 1906.

6. Comment on the following words of Adam Smith: "Nothing is more useful than water; but it will purchase scarce anything; scarce anything can be had in exchange for it. A diamond, on the contrary, has scarce any value in use, but a very great quantity of goods may frequently be had in exchange for it." Wealth of Nations, Book I, Chap. iv.

7. Point out the differences in the tables of consumption statistics quoted in the text. How do they modify Engel's statements? Suggest explanations of these differences.