8 may render most important services in helping people to distribute their resources wisely between different uses, so that the marginal utility for each purpose shall be the same.But the vital problems of domestic economy relate as much to wise action as to wise spending.The English and the American housewife make limited means go a less way towards satisfying wants than the French housewife does, not because they do not know how to buy, but because they cannot produce as good finished commodities out of the raw material of inexpensive joints, vegetables etc., as she can.Domestic economy is often spoken of as belonging to the science of consumption: but that is only half true.The greatest faults in domestic economy, among the sober portion of the Anglo-Saxon working classes at all events, are faults of production rather than of consumption.
3.In classifying some pleasures as more urgent than others, it is often forgotten that the postponement of a pleasurable event may alter the circumstances under which it occurs, and therefore alter the character of the pleasure itself.For instance it may be said that a young man discounts at a very high rate the pleasure of the Alpine tours which he hopes to be able to afford himself when he has made his fortune.He would much rather have them now, partly because they would give him much greater pleasure now.
Again, it may happen that the postponement of a pleasurable event involves an unequal distribution in Time of a certain good, and that the Law of Diminution of Marginal Utility acts strongly in the case of this particular good.For instance, it is sometimes said that the pleasures of eating are specially urgent;and it is undoubtedly true that if a man goes dinnerless for six days in the week and eats seven dinners on the seventh, he loses very much; because when postponing six dinners, he does not postpone the pleasures of eating six separate dinners, but substitutes for them the pleasure of one day's excessive eating.
Again, when a person puts away eggs for the winter he does not expect that they will be better flavoured then than now; he expects that they will be scarce, and that therefore their utility will be higher than now.This shows the importance of drawing a clear distinction between discounting a future pleasure, and discounting the pleasure derived from the future enjoyment of a certain amount of a commodity.For in the latter case we must make separate allowance for differences between the marginal utilities of the commodity at the two times: but in the former this has been allowed for once in estimating the amount of the pleasure; and it must not be allowed for again.
4.It is important to remember that, except on these assumptions there is no direct connection between the rate of discount on the loan of money, and the rate at which future pleasures are discounted.A man may be so impatient of delay that a certain promise of a pleasure ten years hence will not induce him to give up one close at hand which he regards as a quarter as great.And yet if he should fear that ten years hence money may be so scarce with him (and its marginal utility therefore so high) that half-a-crown then may give him more pleasure or save him more pain than a pound now, he will save something for the future even though he have to hoard it, on the same principle that he might store eggs for the winter.But we are here straying into questions that are more closely connected with Supply than with Demand.We shall have to consider them again from different points of view in connection with the Accumulation of Wealth, and later again in connection with the causes that determine the Rate of Interest.
We may however consider here how to measure numerically the present value of a future pleasure, on the supposition that we know, (i) its amount, (ii) the date at which it will come, if it comes at all, (iii) the chance that it will come, and (iv) the rate at which the person in question discounts future pleasures.
If the probability that a pleasure will be enjoyed is three to one, so that three chances out of four are in its favour, the value of its expectation is three-fourths of what it would be if it were certain: if the probability that it will be enjoyed were only seven to five, so that only seven chances out of twelve are in its favour, the value of its expectation is only seven twelfths of what it would be if the event were certain, and so on.[This is its actuarial value: but further allowance may have to be made for the fact that the true value to anyone of an uncertain gain is generally less than its actuarial value (see the note on p.135).] If the anticipated pleasure is both uncertain and distant, we have a twofold deduction to make from its full value.We will suppose, for instance, that a person would give 10s.for a gratification if it were present and certain, but that it is due a year hence, and the probability of its happening then is three to one.Suppose also that he discounts the future at the rate of twenty per cent per annum.
Then the value to him of the anticipation of it is 3/4 x 80/100 x 10s.i.e.6s.Compare the Introductory chapter of Jevons, Theory of Practical Economy.
5.Of course this estimate is formed by a rough instinct; and in any attempt to reduce it to numerical accuracy (see Note V in the Mathematical Appendix), we must recollect what has been said, in this and the preceding Section, as to the impossibility of comparing accurately pleasures or other satisfactions that do not occur at the same time; and also as to the assumption of uniformity involved in supposing the discount of future pleasures to obey the exponential law.
