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Chapter 12 Market Failures and Biotic Resources • 219Profit-Maximizing Harvest When Profits Can Be Invested:Net Present ValueReturning to the higher-cost scenario (TC), suppose we make sure thatthere is a single owner, not open access. Are we then sure that we will endup at N 1 ? Unfortunately not, because of the troublesome issue we sweptunder the rug initially: What happens to the fish that are part of the stockreduction rather than the annual recruitment? They are not thrown away,and their number is large relative to the annual growth. Those fish aresold. Stock reduction fish have the advantage of being available now; youdon’t have to wait for them to be hatched and grow. But the more you reducethe stock of fish today, the fewer fish you will have tomorrow, andthe more difficult it will be to catch those fish. The population of fish islike the proverbial goose that lays golden eggs in perpetuity. Surely no rationalcapitalist would kill such a productive goose.Or would she?If the capitalist wanted to maximize the sum of golden eggs from nowuntil the end of time, then obviously she would not kill the goose. But thegoose also has a liquidation value as a cooked goose. Suppose the capitalistcould kill the goose, cook it, and sell it for a sum of money, whichwhen put in the bank at the going interest rate would yield an annual sumgreater than the value of the golden eggs? Then it’s goodbye goose, hellobank! The population growth rate of the goose (its egg-producing fecundity)is in direct competition with the interest rate, the “fecundity” ofmoney. Neoclassical economists argue that money itself may have noreproductive organs, but it is a surrogate for many other things that canreproduce, and on average those other things can reproduce faster thanthe goose. So the goose-killing, reinvesting capitalist has converted aslow-growing asset into a fast-growing one, and therefore we are all betteroff. According to economists, cooking the goose in this case maximizesnet present value (NPV): the value to us today of all cost and benefitstreams from now into the future. Economists calculate NPV by using adiscount factor to give less weight to costs and benefits the farther in thefuture they occur (see Chapter 10).Let’s take the story a bit further in a thought experiment. Suppose aneconomy consists only of renewable resources. The interest rate is equalto some weighted average of the growth rates of all renewable resourcepopulations. Everything that grows more slowly than the average (the interestrate) is a candidate for extinction (unless at some stock its growthrate rises above the interest rate). But something is always below average.When the below average is eliminated, what happens to the average in thenext period? It goes up, of course. The tendency, it seems, would be to endup with only the fastest-growing species. Biodiversity would entirely dis-