and supply be reflected in a corresponding symmetry between the utility and the costs which underlie them?  Demand springs obviously from utility; the only motive for buying anything is that it will serve some real or fancied use.  Can we then accord to demand so dignified and to utility so subordinate a place?  There is here an inconsistency which we must somehow reconcile.  It will not serve as a solution to distinguish between different periods of time, and to say, as economists used to say not very long ago, that price is governed over a short period by demand and supply, but in the long run by the cost of production.  This still leaves our sense of symmetry unsatisfied.  Moreover, the conception of cost of production, when we consider it as ruling over a long period, frequently seems to lose any precision, as an independent factor, which it may otherwise possess.  Motor-cars, we have agreed, are more costly to produce than loaves of bread; but, as we know well, the cost of producing motor-cars varies enormously, accordingly as they are produced on a small or a large scale.  By the methods of mass production they can be turned out at a relatively low cost per car.  But this requires that they should be purchased in large numbers and this in turn throws us back to the demand for motor-cars, and plainly enough, to people’s judgment as to their utility.  In some cases, the opposite phenomenon occurs.  In the case of British coal, for instance, the average cost of production would be much lower than it is if the output were reduced to a fraction of its present volume, and if only the richer seams of the more fertile mines were worked.  Once again, therefore it is difficult to measure the cost of production until we know the magnitude of the demand, which in a manner, which we have still to elucidate, clearly depends upon the utility.

If we take the problem of joint products, the conception of cost of production fails us still more conspicuously.  For what is the cost of producing wool, or the cost of producing mutton?  We can speak of the cost of rearing sheep:  but it is hardly possible to allot this cost, except quite arbitrarily, between the two products.  How, then, can we explain the separate prices of these things by reference to cost alone?  Instances of joint production are becoming so common in the modern world, or at least, with the growing attention to the utilization of by-products, are assuming so much more heightened a significance, that an explanation of price, which does not apply to them, is a very feeble one indeed.

Sec.2. The Law of Diminishing Utility.  Let us turn back, then, to the factor of utility, and see if we cannot put on a more satisfactory basis the relation between utility and price.  The clue to the puzzle is to be found in a brief reflection on the implications of the second general law propounded in Chapter II.  A rise in price, it was there stated, will sooner or later diminish the demand.