RATE OF TIME-PREFERENCE 1. Subjective rate of time-preference. 1 2. Time-preference showing in care and repairs. § 3. Time-preference showing in production of in direct agents. 4. Time-preference rate pervading an economy. 1 5. Time-preference and moral weakness. I6. Beginnings of durative di rect goods. f 7. Valuation of durative direct goods. 1 8. Relation of technic to time. 4 9. Examples of technical and time-differences. 1 10. Degrees of roundabontness ruled by time-preference.
§ 1. Subjective rate of time-preference. The fundamen tal ideas of value (developed in Part I) have application to the rate of time-preference. Wherever there is a good that offers a time-choice to its possessor, there arises valuation as re gards time. One may eat the apple now (a typical direct good) or postpone its use, may shift it forward or backward in time. We know little of the absolute magnitudes of the desires that men may have for these things at the two different points of time. We infer only that if a man eats the apple now, his desire for its present use is greater than his present desire for its future use. The preference of the present may be due (case 1) to the prospect that apples which are scarce now will be much more plentiful in the future ; there we feel almost warranted in saying that the absolute magnitude of the present value is greater than it will be at that future time. We at least feel that we can infer something as to this. But again (case 2) the present use is chosen when the prospect is that apples will be no more plentiful, indeed when it is cer tain that they will be less plentiful, but when our need and our desire for them will be greater. Again (case 3) when one eats a part and keeps a part of a large crop and the keep 248 ing involves no trouble or cost whatever, and no loss from decay, etc., there may be no difference whatever in the present values of the different units of the stock. The principle of indifference applies. But in almost every conceivable case the keeping of a good calls for some labor (thought and phys ical effort) and the use of agents valuable for other pur poses (case 4). The present value of a future unit would have to be therefore at least enough greater than that of the present unit to make up this additional cost, otherwise it will not be kept. Present value plus estimated cost of keeping
equals present value of future unit. There is time-preference for the future, ex actly offset by costs.
The marginal unit for each period would be in equilib rium with the mar ginal unit in the other period. (See Figure 32.) In these cases, however, there is no element of pure time preference, other than that offset by costs, no degree of pref erence for the present unit simply because it is present. The supposition involved is that of equality of value to the results of equal expenditures of labor and to equal amounts of other agents regardless of the time-distance at which various prod ucts would appear. Even in a Crusoe economy such a pref erence must exist. If Crusoe disregarded all time-differences he would take exactly the same thought of the products of fifty years distant as he did of present products and would put just as much of his labor and equipment upon them; that is, he would divide the year's products into fifty (or more) parts, using only a fiftieth. Normally he uses all or nearly all of this year's income, leaving to next year's labor and equipment the task of providing for next year's needs. Prac tical observation and all the considerations adduced above (Chapters 3, 10, and 20) regarding man's nature, support the view that present desires will receive on the whole more atten tion than future desires. If any true time-preference whatever prevails, it must be at some rate, in each case, tho the rate may vary with the mood and the conditions in which Crusoe finds himself. One could, by watching different individuals working at their own affairs, form a general opinion, often a pretty accurate one, as to whether their rates of time-prefer ence were high or low. It would show in many ways in their use of their own time and of their stocks of goods, in the qualities of thrift, industry, prudence, etc. But to express any general rate at all exactly would be most difficult so long as we observed only the choice among many objects, without any common standard of value in which to compare them.