14: The Earnings of Industrial Groups
On the scale of the individual, a person must produce that which he desires to consume and when he has many desires he must prioritize them and determine where to spend his time and effort. On the scale of a society, industry (all producers) must produce that which all consumers desire to consume. In a free market, consumers indicate what they desire by their willingness to purchase products - such that a producer who furnishes what is desired is rewarded with income and one that fails to furnished what is desired receives no reward. In a broad sense, the spending of all consumers constitutes a "social fund" for the purchase of products, and society itself determines what industries it will pay industry to furnish that which is desired.
(EN: I'm a bit wary of this, as it creates the impression that there is a need for coordination and control at the highest level, generally by national or international governments interfering in economic matters to ensure that producers furnish the desired items to consumers - or in some instances to deny consumers what they desire because politicians feel they know better what men ought to desire. It's important to keep in mind that there is no "social fund" and that this is merely a way of observing what individuals do in aggregate with their own personal funds.)
On the grandest scale, consumers in the marketplace apportion their funds across different industrial groups. Society as a whole desires so much food and so much clothing, and the amount they are willing to spend on these things provides the ultimate income of the food and clothing industries - and by proxy, it determines the amount that producers of these items will pay for the goods and services that they need (the consumers decide how much bread to buy, the baker decides how much flour he needs to create that bread, the miller decides how much wheat he needs to create that flour, the farmer decides how many acres he must plat to furnish that wheat).
Industry, meanwhile, is largely composed of workers. The entrepreneurs and investors may organize the capital resources necessary to production, but relies upon workers who are willing to contribute their effort for a wage. An individual worker is a person who is willing to undertake inconvenience and unpleasantness in exchange for a monetary reward - he is not compelled to do anything against his will. So in this sense, a customer who is willing to pay a price for an item is actually paying a worker to perform the tasks necessary to produce it. If the customer provides sufficient reward for performing those tasks, workers will create the item he desires. If the customer refuses to provide sufficient incentive, workers will not create the item.
Because of the diversity and volume of products demanded by all of society, economics seems to be a complex matter. But it is based on a very simple relationship between a person who wants someone else to do something for him in exchange for a reward.
Back to industry: The first level of competition takes place when individual firms in an industry attempt to make their product appealing to as many buyers as they can - generally by offering acceptable quality at the lowest price. However, selling a low volume of high quality goods at an elevated price is also a viable strategy, as some customers demand better or different quality and are willing to back their demands with greater reward to those who will provide it. What constitutes "better" is subjective - but if enough consumers agree that a given quality or feature is desirable enough to pay for, they become a market segment for a slightly differentiated product, and if their number is sufficient, they fund a producer who will serve their special requests.
There is also a limitation to the amount of a good that consumers will wish to have at any price. Food is necessary to sustain life and desired to satisfy appetite in certain quantity - but one bite more offers no further benefit, even if it were offered to him as a gift he would not desire to consume it. So there is a range of values in the quantity of food a man (hence a society) desires, between the minimum amount necessary to sustain human life and the maximum amount that can be comfortably consumed. And as a consequence, there is a high price that a man will pay to have the bare minimum needed, a low price that he will pay to have as much as he can consume, and no price at which he would wish to have more than he can consume.
For luxury goods, which are not necessary to sustain life, the minimum quantity required is none at all, but it can be considered how much might be desired. Consider books: a person may wish to spend a certain number of hours in reading, and may be able to spend a maximum number of hours in reading. It may please him to spend an hour or two in this activity, but each additional hour is less pleasant until the activity of reading becomes boring and he wishes to do no more. In estimating this, publishers may calculate the number of books they can sell to the market of readers. They may also segment the market according to what kinds of books they believe people would desire as well as how much an individual will pay for the possession of a book. The author does pause to consider that there is some irregularity, as most people find little value of owning multiple copies of the exact same book - but in the same way there are few people who would want to own more than one coat of the same cut and color, but desire a variety in their wardrobe.
He then considers the customer's willingness to spend, suggesting that even money has decreasing marginal utility. To a poor man, a dollar is quite a fortune because he needs many things; to a rich man it is of little consequence because he can already obtain the necessities and entertainments to fill every hour of his life. The more dollars a person has, the less he values each one, which explains why some men are willing to give a thousand dollars for a bottle of fine wine while others are pleased with a two-dollar bottle. It is not that they value the wine more, but their dollars less - and hence they are willing to give more of them in exchange for goods and services. (EN: I recall reading a study about "money and happiness" that found that most people top out at a certain level - currently around $85,000 - after which having more money doesn't seem to make them any happier.)
He also touches on the notion of upgrading consumption - that a poor man eats the cheapest food available and wears a shabby coat, but increase his income and he will purchase more expensive foods and finer clothing. These items are no better in terms of meeting the functional need, but because he has greater wealth he does not mind trading more dollars to have better quality.
He then speaks to the notion of security by means of accumulating things for future use when income permits. A poor man wears all the clothing he owns and eats his food the day he buys it; a rich man has a wardrobe full of clothing and a larder full of food for future consumption. So part of the demand for goods is not driven by present consumption, but storage for future consumption and duplication against fear of loss or damage. The benefit is not in consuming these goods, but in feeling powerful or safe because of possessing them. Money, itself, is often hoarded in this manner to have a sense of power and security for the ability to buy things in future.
And then there is the matter of social and psychological consumption: a rich man does not need a mansion surrounded by acres of garden, nor does he derive any benefit or pleasure from them item. But he feels that it is something he must do to belong to a given class - the mansion causes him to feel a certain way about himself, and others to feel a certain way about him, that they would not feel if he had a more modest home.
With all of this considered, it becomes very difficult to precisely identify markets and industries. To say that a consumer wants "food" or "clothing" is abstract and general, and ignores much of what customers actually want. Each customer is highly idiosyncratic needs, and his desire for food is not satisfied by purchasing "food" but by a specific item. It can be observed that some customers are similar in their needs, but it should never be construed that all customers and all goods are homogeneous and interchangeable.
Likewise, the industrial classifications are similarly astigmatic - the suppliers to the "food" market are not competing for the same customers because they are not offering the same products. Industries must be classified in granularity make the designation meaningful. A more specific and accurate representation of supply (and demand) is yielded by considering the market for expensive ladies' dress boots tan by assuming that everyone in the "shoes" industry is interchangeable.
Ultimately, there are very few goods that are truly commodities, such that consumers will see one as a perfect alternative to another - and speaking in broad strokes about industries blurs many important details.