Page:Risk, Uncertainty and Profit.djvu/145

Rh over future goods is so commonly and confidently made that some courage is required to call in question the foundations of the entire body of doctrine on the subject; 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. The fact of the existence of interest in society is wrongly taken as proving that men discount the future. The relation between interest and time preference 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 dollar equally 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 do not postpone all consumption of goods indefinitely into the future argue an ingrained abstract preference of present to future consumption. Neither do they wish to compress all the satisfactions of a lifetime into the present moment and fast forever after, which act by the same reasoning would 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 to-day and nothing in the future; a more sensible form of question would be this: If one had to choose between enjoyment to-day with abstinence to-morrow on the one hand, and abstinence to-day with enjoyment to-morrow, on the other, which would be more desirable, all other things being equal? 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 its expenditure through the year? There would clearly be no question either of eating it all up the first day