The two scales of satisfaction do not in the least correspond with each other, and it is quite impossible in the two kinds of employments to keep always exactly to the same marginal amount.
All economic demands are fulfilled when care is taken that goods of less marginal utility are never produced from production goods which, if employed in producing other things, might have brought a higher marginal utility. It may, therefore, very well happen, and, in the case of all means of production which are capable of numerous and varied employments, it will always happen, that the marginal amounts in the different classes of production will differ from each other.
Suppose, for example, that from one stock of iron are produced three kinds of products, which we may designate as A, B, and C; that, in kind A, the unit of iron receives a value of 10-- corresponding with the economically-attainable marginal utility of 10; -- that in kind B the unit receives a value of 9-- corresponding with the marginal utility 9; in kind C, a value of 8 -- corresponding with the marginal utility 8. Here we have a case where utility, at the stage of the products, is not yet completely adjusted to the marginal level, and where the equalisation must first take place directly and at the stage of the production goods. That the equalisation must ultimately take place cannot be doubted. It is quite impossible to estimate one-third of the iron higher than another third; indeed, assuming it to be all of one quality, there would be no possible way of deciding which concrete portion of the stock should have the preference over the rest. So long as any appreciable quantity of the iron is destined to turn out products with a marginal utility of 8, no unit of the entire stock can be valued at a higher return. To every unit in such a case must be imputed the marginal return of 8, and the value of the entire stock is found by multiplying the number of units which it contains by the marginal value 8.(1*)The fact that the marginal law applies, partly directly partly indirectly, to production goods also, first renders it possible for value actively to fulfil its peculiar economic service, as the form in which we calculate utility and the means by which we control it. Compared with stocks of consumption goods, stocks of production goods are larger, more concentrated, and more homogeneous. In the household of an individual there are not many stocks of anything, but the elements which produce almost all he possesses are accumulated in stocks -- in the hands of producers sometimes in enormous stocks, -- and thus become subject to the simplified calculation of value, where the economic amount of each stock is expressed by a multiple of its amount and marginal value. And thus, through the law of costs (see note below), products also are subjected, in great numbers, to this simplified form of calculation.
We constantly see producers making calculations as to their warehouses, materials, plants, and stocks in this simple way;namely, by taking the amount and the price of the unit, and putting down as the total value the amount obtained by multiplying the one into the other. This observation by itself is sufficient proof of the wide extent to which the marginal law obtains in the economy of to-day. Not only are prices decided by a marginal law, but, by means of prices, the whole sphere of production, which makes its calculations throughout in terns of price, is based all through on a marginal valuation. Is it not worth while to discover what is meant by the application of a marginal valuation such as this? And is it not satisfactory to know that the naive form of estimating goods, pursued from time immemorial in virtue of the original prompting of man's nature, is a wonder of simplicity and appropriateness?
NOTES:
1. This is one of the most pregnant applications of the marginal law; we shall return to it again and again later on, particularly in the fifth book, where we consider the subject of costs. To assist our comprehension of the law of costs, we may here anticipate so much as to say, that the productive marginal value on its part has a levelling effect upon the value of products. In the above example the value of the marginal utilities 10 and 9, in kinds A and B respectively, will be alike pressed down to the productive marginal amount of 8.
