The altruistic motive.
Let it not be assumed, however, that because the economic motive is strong in man he is an altogether selfish creature. There is also an altruistic motive which impels him to help his fellow-men, even at personal sacrifice. Men desire to gain wealth for themselves, but having gained enough and to spare, they frequently devote much of it to the assistance of those who have not been so fortunate. The higher our civilization the more marked does this spirit of altruism or economic unselfishness become.
Economic goods.
The Subject-Matter of Economics.—The study of economics does not concern itself with all the possible wants and aspirations of men. It deals only with the production, distribution, and consumption of those things which satisfy man’s desire for (a) material objects and (b) personal services. In other words economics is a subject which concerns itself with the production, distribution, and consumption of economic goods, a term which includes material possessions known as wealth and also such personal services as have an economic value. Not all things of a material sort are economic goods; air and sunlight, for example, being free to all, require no effort on the part of man to obtain. They are called free goods. We apply the term economic goods only to such things and services as satisfy human wants and are not to be had free. Requiring effort to produce, these economic goods are limited in supply and hence have a value in exchange for other goods. For this reason they are commonly spoken of as wealth. Certain personal services, those of the physician, the lawyer, the foreman, the laborer, also have an economic value in that they are limited in supply, satisfy material wants, and can be exchanged for tangible goods. These services form a part of the economic activities of society, a very important part. So the study of economics includes these personal services as well.
Present and future economic goods.
The Consumption of Wealth.—All economic goods are produced for the purpose of being used. This use is what the economist calls consumption. Some economic goods are in finished form, ready for immediate consumption at any time; others are in the form of raw materials or half-finished products not yet ready to be used. Hence we distinguish between present and future economic goods. Economic organization strives to manage matters so that a sufficient supply of economic goods will reach their finished form in time to fill the demands that arise. This demand on the part of the consumers determines the methods and amount of production. If there is no demand for a particular kind of economic goods, these goods will not be intentionally produced. On the other hand a vigorous demand will encourage production and speed up the process of distribution.
Demand and supply.
So we get back, in the end, to the proposition with which we started, that the purpose of economic activity and organization is to supply human needs. Where the need is felt, the demand arises. When the demand arises, the agencies of supply, namely production and distribution, usually respond. One of the great tasks of economic organization, therefore, is to estimate the probable demand and so influence production and distribution that the supply will neither be excessive nor fall short. If there is an over-supply of any commodity, prices normally will fall. That means that goods may bring less than it costs to produce and to distribute them. One reason for the organization of industry on a large scale under great corporations is that supply can thus be kept closer to demand. At any rate the consumer, by his greater or smaller demand, virtually determines all activities of production and distribution. He is the pivot of the whole economic system.
The factors in demand.
Whether the demand on the part of the consumer will be larger or smaller depends on three factors. The first is the utility of the goods to him. Economic goods do not have the same utility to all men at all times. The utility of ice on a warm summer day may be considerable; in midwinter it is next to nothing. The utility of eye-glasses to short-sighted men is great; to men of normal sight they have no utility at all. Economic goods may, therefore have a greater or smaller utility depending upon the place, the time, and the consumer. Bear in mind, moreover, that each consumer matches the utility of one commodity with the utility of other commodities which he finds available, and his demand follows the direction of the greater utility. A second factor in demand is the price of the goods. When the price goes up, the demand ordinarily will go down, because some customers will decide that the utility of their money is greater than that of the goods at the increased price. Finally, demand depends in part upon the purchasing power or wealth of the consumers. In prosperous times, when people have plenty of income, the utility of goods seems greater than the utility of money; in times of depression and low incomes the reverse is true. The interaction of these three factors determines the demand.