_some_ labor, _some_ materials of various kinds, are all indispensable
in the production of any manufactured commodity. But the proportions
in which these factors are combined together can be varied, and are
frequently varied in practice as the result of the ceaseless pursuit
of economy by business men. To produce pig-iron, you need both coal
and iron ore; but, if coal becomes more costly, it is possible to
economize its use. Machinery and labor must be used together, in some
cases in proportions which are absolutely fixed. But there is in
nearly every industry a debated question as to whether the
introduction of some further labor-saving machine would be worth
while, or some improved machine which would represent the substitution
of more capital plus less labor for less capital plus more labor. A
farmer can cultivate his land, to use a common expression, more
intensively or less intensively; in other words, he can apply larger
or smaller quantities of capital and labor (the proportion between
which he can also vary) to the same amount of land. The problem is
essentially the same as that of the substitution of the crossbred for
the merino. We can take the various possible combinations of the
factors of production, and contrast two cases in which different
quantities of one factor are employed, together with equal quantities
of the others. The extra product which will be yielded in the case in
which the larger quantity of the varying factor is employed can then
be regarded as the marginal product (or marginal utility) of the extra
quantity of that factor; and we can say that the employment of this
factor will be pushed forward to the point where this marginal product
will be roughly equal to the price that must be paid for it. We can
thus lay down the most important proposition that the relation between
marginal utility and price holds good generally of the ultimate agents
of production; that the rent of land, the wages of labor, and, we can
even add, the profits of capital tend to equal their (derived)