16: Customers' Wealth and Value
Wealth is the present capability of receiving benefits in the future. The wealth of the consumer consists of his ability to receive benefits by consuming products. That is, he has the money to buy things that will be beneficial to him, or he has the items themselves that he might consume to receive benefits. Wealth is increased when a man increases his stock of money or goods, and it is depleted when he spends money and consumes goods (or gives them away, or has them taken from him, or loses them - but in most instances wealth is consumed).
Money has a multiplicity of uses because it can be used to obtain many things, but things have limited uses, and generally only one or two for which they are mist fitting. The use of bread is to be eaten. It may please a man to wear bread for a hat rather than eat it, which seems foolish but it may well be his pleasure. Industrial goods have a wider range of non-silly options: there are many things that might be made of a piece of wood. For consumers and manufacturers, it is generally assumed that the person in possession of an item decides how best to employ it, and does so to its greatest advantage. Whether to make wood into a chair or a cane is essentially the same decision on whether to buy a chair or a cane with a given sum of money.
Then, return to the theory of marginal utility: the more of something a person has, the less valuable is each additional unit. A man values the first loaf of bread as something to eat, a few more to be stored to consume in the future, but beyond that has little use for bread. But at some point, any more would be wasted - it would not be a good use of his money, and it would be a burden to carry and store, and to dispose of when it rots.
There is a brief consideration of "secondary services" from goods: a man buys a chair in which to sit, knowing that at some time in future it will break. When it breaks, he uses the pieces as firewood and gets an additional benefit from them. The secondary service or salvage use of things is seldom a consideration, but merely an efficient means of getting value by some other means. Returning to bread, the man who gets a good deal in the marketplace and buys more loaves than his family can consume may find he can feed it to his dog, or use it as bait to catch a fish - but he did not consider this when he made the purchase. So it is largely correct to ignore these things and consider only the primary service for which an item is obtained.
And so, the price a person is willing to pay for an item depends on the value he places on the benefit he will gain from consuming it. The prices in the market are a competition among buyers: those who place the most value on consumption offer the highest price, and get the first units. For each successive unit, the same principle applies - those who value it most offer the most to suppliers. Those that already have one unit will offer less for the second, third, and so-on and may then be out-bid by others who value it more. As more is supplied to the market, less is offered - to the theoretic extreme that everyone has all that they wish to possess and suppliers are left with inventory that cannot even be given away.
There is a bit of complexity about "bundles" of goods - which in this instance seems to be the assortment of goods that a given customer wants to have (a certain amount of food, a certain amount of clothing, a certain amount of tobacco, etc.) based on his expectation of the cost. When he finds one of the items more expensive, me may decide to do without it, but he may also decide to have it at the cost of not being able to have a different item. For this reason, markets are interconnected - the price of tobacco may decrease the amount of bread a customer is willing (or able) to consume at a given price. Ideally, a customer would prioritize things differently (preferring to have bread and go without tobacco), but each customer decides for himself which of his desires is most compelling.
This notion of bundles is more appropriate to the commercial market, where manufacturing a product requires a bundle of other products that are essential. That is, a tailor needs cloth, thread, and buttons to make a coat - if there is a sudden shortage of buttons and their price is high, he must adjust his production to account for this, buying less thread and cloth as a consequence of the additional amount he must pay to have buttons. (EN: This is less common, but not unknown, in consumer purchases as some items are complementary in their consumptive uses.)
There's a brief diversion about quality: the buyers who are willing to pay the highest price usually get the highest-quality items of a given kind, whereas those who offer the lowest price get low-quality products that are sufficient to accomplish the same benefit. A rich man may own only one coat, but his will be of fine silk while a poorer man's coat is made of coarse wool. This is because he was willing to pay more for it, which provided his suppliers the ability to use better materials and more expert laborers in the production of his coat.
There's then a rather long consideration of a canoe, whose primary value is in getting a man across stretches of deep water. Its quality is improved if it is dry and comfortable, has some space to carry gear, and is swift and maneuverable. It is also desired to have a pleasant appearance, graceful and decorative. The tastes of the customer may cause some of these qualities to be more or less important (some would sacrifice cargo space for speed or a graceful design).
He mentions that canoes can be had that cost as little as $75 dollars, and others that cost $1,000 or more. The customer with little to spend will buy the cheapest canoe, which fulfills only the most fundamental need (it can be used to cross water). Customers with more to spend can then get more quality: a $200 canoe is dry and comfortable but lack cargo space, the $300 canoe adds the cargo space, and so on, until we arrive at the most expensive model, well-appointed, ornamented, and made of rare materials.
There's also a bit about the "final utility" of a product, which is the feature or quality most valued by a customer. In the example of a canoe, a customer may be interested only in speed and will pay to have the fastest canoe he can find, ignoring all other qualities. The fact that this individual and others with similar interest will pay a significant amount for a fast canoe often means that the rest of the market, who value speed less, will have to pay more for this quality.
While many see value in isolation, a single customer considering the degree to which he desires certain things, it is really a social phenomenon - the more people who value a thing, the greater the demand for it, and the higher price that all must pay to have it. A single person may insist he will pay no more than a fixed amount to have something, but will often need to yield to the market - if his desire is strong enough, he will pay more if his only alternative is to do without it. But to counterbalance this, producers seek to win the market by offering a product that has the qualities that many people desire, and increase the production of goods that fetch a high price. So it isn't long before customers' aggregate desire for a certain item or a certain quality is met or exceeded by supply, and the plentitude of it brings the price back down.
We also find that few goods are commodities. To meet the demand for certain qualities, producers offer goods of varying qualities. There are many houses, from the shanty to the mansion, to suit different buyers' desires. There are many grades and styles of watches. And so it is with virtually every product because a single level of quality does not appeal to all customers.