Risk, Uncertainty, and Profit - Free

that the owner of such property may belong to more than one productive group and contribute more than one kind of service at the same time. Theprinciples of organization of the system as a whole are in no wise affected by this change in the conditions of competitive arrangements.The possibility of the permanent transfer of property by exchange, even though not subject to increase or decrease, does introduce some newfactors into our problem. These results are closely related to the bearings of another abstraction hitherto made, the continuity and timelessness ofthe production-consumption process. Consequently, we must first get rid of this simplification and consider the effect of the abstracted element.What then will happen in a society such as we have studied when conditions are so modified in the direction of reality that, while perfect knowledgeand static conditions in other respects are maintained, the production process is protracted over a considerable period of time and split up intocomplicated stages and subdivisions, and when, moreover, goods need no longer be consumed at once when finished, but may be stored forfuture use, or exchanged?The division of the productive process into stages carried on in different groups or plants is a detail connected with the time length of the process,but which we can pass over with brief notice. It is in fact a relatively accidental matter of organization, and under the "frictionless" conditions hereassumed it would make no practical difference whether successive processes in the making of an article were integrated through the internalorganization of a single group or through the external mechanism of market dealings between groups. Under these conditions there will be inexistence at any time a complex aggregate of partial products, goods in process, which of course will have value. We must separate that element inthe value of the partial products which is due merely to the stored-up productive energy which they contain from any modification of this value due tothe direct psychical influence of the time which must elapse before they are ready for consumption.The relation of time to the production and consumption of goods is a complicated and controversial question; while only a very brief discussion canbe attempted here, it is necessary to make a superficial survey. The assumption of a general preference in human nature for present over futuregoods is so commonly and confidently made that some courage is required to call in question the foundations of the entire body of doctrine on thesubject; yet it must be done. Most discussion of the subject is, in the writer's view, vitiated by a false conception of the nature of the problem. Thefact of the existence of interest in society is wrongly taken as proving that men discount the future. The relation between interest and timepreference is, in fact, inverted in this view. In a free market where interest can be obtained it is natural that men should esteem a present dollarequally with its amount at the current interest rate at a future date, since one can be freely exchanged for the other. Nor does the fact that men donot postpone all consumption of goods indefinitely into the future argue an ingrained abstract preference of present to future consumption. Neitherdo they wish to compress all the satisfactions of a lifetime into the present moment and fast forever after, *73 which act by the same reasoningwould prove a disposition to discount the present in favor of the future.The error in the current reasoning is a wrong choice of a zero point from which to measure time preference. The correct basis is not everything todayand nothing in the future; a more sensible form of question would be this: If one had to choose between enjoyment to-day with abstinence tomorrowon the one hand, and abstinence to-day with enjoyment to-morrow, on the other, which would be more desirable, all other things beingequal? Or better still, if a man were given his entire income for a year in a lump-sum payment on January first, how would he distribute itsexpenditure through the year? There would clearly be no question either of eating it all up the first day or saving it all till the last day; a zero timepreference obviously means a uniform distribution in time. Any piling-up of consumption at an earlier date to be compensated by reducedconsumption later on would be a real discount of the future, while to skimp now for the sake of plenty or luxury in the future would be to discount thepresent. Of course, we abstract from the element of uncertainty as to the future. We seem justified in pronouncing either tendency irrational if otherthings are really reduced to equality in the alternatives. *74As to the facts of human nature it is safe to assume that different individuals would give the most varied forms of distribution. Doubtless few, if any,of these would conform to straight lines or smooth curves of any sort, ascending, descending, or level. Most would go in waves of greater or lessperiod and amplitude, intervals of moderation or even abstemiousness alternating with "blow-outs" of various sorts and degrees. Irregularity seemsin fact to be a virtue on its own account, at least to the spirited individual. *75 Whether there would be an upward or downward trend would dependalso upon the individual. To many, a bird in the hand is worth two or more in the bush, while others take much thought for the morrow. Somechildren, as Marshall remarks, pick the plums out of the pudding to eat first, while others save them until the last, and many do not pick them out atall; and adults differ in the same way. The improvidence of savages is proverbial. Of course, the physical conditions of life set limits to thediscounting process in both directions; we cannot enjoy to-morrow unless we live to-day, and many have learned at a cost that too high a rate ofliving in the present may have a similar effect upon the capacity for future enjoyment. No generalization in regard to the human race at large seemsto be worth making, especially in view of the unreality of any simple assumptions as to the conditions surrounding the choice. The facts of mereprodigality on the one hand and mere miserliness on the other are indisputable and may be studied without attempting to strike any precisebalance.It is perhaps even more important at this point to insist that the mere question of time preference in consumption is relatively unimportant at best asan explanation of the phenomenon of saving. The disposition to spend or to save, to consume income in the present or to store up wealth, is muchmore influenced, in fact, by other motives. *76 Like human conduct in other respects it is mostly a matter of social standards, of what is "good form,""the thing" or not the thing to do. The fact of possessing an accumulation of goods confers social prestige and in addition vast power over one'sfellows. Even where, as we are now assuming, productive employment is not open to wealth, the rich man will be in a position to make his favorsolicited, his ill-will feared, and may, of course, turn his situation to material profit if so disposed. Accumulations are necessary to lavish displays ormagnificence of any kind. On the other hand, we must suppose that where accumulation is limited to consumption goods, it will be subject toconsiderable costs, for storage, preservation, protection, and doubtless inevitable deterioration. *77It will be evident that differences among the individual members of society in economic position and taste with reference to the time of use of goodscreate a situation in which exchange will be mutually advantageous. To one, a present or early allotment of goods in advance of his own productionand against an obligation to repay later will be or seem a benefit, while to another, with an accumulated and growing idle stock, a dependableobligation *78 for the future delivery of a certain amount of value, may be highly preferable to the possession of the goods themselves.If the balance of the time preference in the population as a whole is in favor of the present, no appreciable net accumulation of goods will take