Where sellers do not wish to part with their whole supply, but to retain a portion, either for their own use or for future sale in some altered condition of the market; where, instead of free competition on both sides, some monopoly exists, or the sale, instead of being public and open to all, takes place privately and in small groups or quite in isolation; -- in such cases our law of price can act only imperfectly or in a greatly weakened manner. At the same time the characteristic element in the formation of price -- that the purchasing power of the buyers is put in the scale -- will always, excepting, at most, the ease of monopoly on the side of the buyers, be present and retain its importance. Goods are not paid for simply according to the amount of utility (i.e. of marginal utility) which they render to the buyers, but also according to the amount of purchasing power which the marginal buyers put on that utility.
Of the many weighty consequences arising from this proposition, I shall at present refer only to one. "The highest prices therefore," (to quote from the Ursprung des Werthes, p.
26) "are obtainable for those goods which are to be had only in small quantity and are objects of desire to the richest classes;the prices of such goods rise till all but the wealthiest classes -- even those groups of the middle classes who are in most comfortable circumstances -- are excluded from the circle of purchasers. Goods which, owing to their inferior quality, are desired only by the poorer classes obtain extremely low prices, as also do those goods of better quality which are so plentiful that the poorer classes must be admitted, to a considerable degree, within the circle of purchasers. Medium prices are reached by those goods of which the middle classes form the majority of the purchasers, those who have small means either being entirely excluded from purchase, or entering the struggle of competition only in so far as will satisfy their intensest sensation of desire for such goods. Changes in the economic possibilities of great classes in a community will naturally induce changes in the prices of goods. The greater the inequalities of wealth, the greater will be the differences in price. Luxuries will rise in price when great fortunes increase, and will fall when they decrease."(2*)NOTES:
1. Here we have a proof from experience for our statement in Book I, chap. ix that (for the same owner) the separate items of a stock, so far as they are equal to each other, have the same use value, and are all valued according to the amount of the marginal utility. One and the same buyer will not consent to pay other than one price for the similar items which are all bought at the same time: he will not pay more for one than for another, and for none will he pay a higher sum than the marginal equivalent. This shows that he values them all equally, and all according to the same marginal amount. Otherwise there would be nothing to prevent his paying different prices for them, and possibly paying more than the marginal equivalent for a great many of them -- indeed for all except one, the marginal item.
2. It is as result of the recognition of this principle that we first arrive at a complete understanding of the remarkable phenomenon which has occupied the attention of so many theorists;that the value of goods which can quite well be done without, such as diamonds, may be so much greater than that of the indispensable necessaries of life; the value of gold, for instance, so much higher than that of iron. It has already been shown, in the elementary theory of value, that the value in use of an entirely insignificant good must be greater than that of a much more useful one when the marginal utility of the former is, owing to its scarcity, comparatively high, while that of the latter, by reason of its superfluity, has fallen very low down on the scale. Even greater differences are found, under certain circumstances, in prices, and consequently in the estimates of exchange value, than are shown in the different estimates of use value. Diamonds and gold stand exceptionally high in price because they are luxuries, valued and paid for according to the purchasing power of the richest classes; while the coarser food stuffs and iron are low in price, because they are common goods, in regard to which the decisive factor is the purchasing power and the valuation of the poor.
