This section is from the "Economics In Two Volumes: Volume I. Economic Principles" book, by Frank A. Fetter. Also available from Amazon: Economic
Repair is nothing but a particular case of production presenting the peculiar problems of complementary agents. Even where time-preference is very great, repairs will be promptly made when the whole agent with all its usance-value may be put back into running order by replacing a single part (as by mending a hole in a canoe, putting a new string on a bow, etc.). It is the anticipatory repairs, the ounce of prevention that is most likely to be neglected in an improvident economy. "When many repairs are needed, the repair becomes as difficult as the making of a new agent, or more difficult, and presents practically the case of new production.
§ 3. Time-preference showing in production of indirect agents. A rate of time-preference is reflected in the physical increment of goods in many cases. Suppose one hundred days of labor this year will produce one thousand fish, caught by wading the streams or will make a canoe which will enable one hundred days of labor next year to yield 1100 fish; and suppose that one day's labor will obtain one thousand apples in the wild forest, and will plant a tree that will yield 1100 apples next year; then the choice of the relatively indirect method results in a physical excess of products at the rate of 10 per cent. But the direct method is chosen and will continue only when the rate of time-preference is over 10 per cent, and is abandoned as soon as the rate of time-preference is less than 10 per cent. Whenever a Crusoe "gets ahead far enough" in his equipment to have a canoe, he no longer gets his fish by wading the streams (except at unusually favorable moments), and when he has got to the point of having an orchard he no longer plans to gather fruits in the forest (tho he will pick the few that are easiest to get). He continues this choice among all the possible present and future uses of his present labor and resources, till he has included all the time-consuming methods, whether direct or indirect, that involve increments as great as his rate of time-preference. That rate, however it may fluctuate, dominates the choice of technical processes. A man's prevailing attitude of mind and habit of choice between present and future, in the use he makes of his present economic agents (labor and goods) marks, so to speak, an isothermal line between those savings which he makes (all tending to the same rate by the marginal law) and those which he fails to make (the excluded choices). Time-preference (a purely psychological fact) involves a rate of discount or of premium which thus would show itself here and there in a certain quantitative surplus or increment each year over the yield possible by the alternative methods. When, however, a better technical method is in use, and is warranted by the rate of time-preference, it is possible only at a loss to go back to the older method. For lack of a saving that involves but 5 per cent discount on next year's goods, one might reduce production to an amount involving 100 per cent discount. Evidently this would be a maladjusted economy, and would call for a new adjustment of agents for present and future uses.
§ 4. Time-preference rate pervading an economy. The mere physical increments that result from any process or method of production are not necessarily value increments of the same magnitude. Indeed, we have no absolute standard by which to measure the magnitude of a person's valuations in two different periods, any more than we have to measure the magnitude of values in the minds of two different persons at the same time. If one values 100 present fruit now as much as he values 110 next year, we can not say that the 110 when they come will have a value 10 per cent greater than they have now. This year there may be an unusually small crop, next year there may be reason to expect an unusually large crop. Under the conditions one hundred present fruit may have a present worth of two hundred future fruit at the same time that many other choices indicate a time-preference rate of not over 10 per cent. Again we must confess that we have no absolute standard of values that can be carried over from one time period to another.
However, when we stand outside of an individual economy, overlooking the seasonal variations within the years and the changes in productive methods due to science and invention, and we see how on the average, year after year, choice is made, we can form some judgment of the person's prevailing or pervading rate of time-preference. Such a rate each individual has; and these rates of individuals unite into a time-price when two or more persons trade present for future possession of goods. Just as the subjective, individual choices between any two commodities (Chapter 7, sections 3-7) enter into a market-price of objective goods, so the rates of time-preferences of individuals trading in a market are adjusted to each other and result in a market-rate of time-preference.
§ 5. Time-preference and moral weakness. Economics touches frequently upon the borders of ethics, and it is well to observe here that abstinence is but an aspect of choice and will-power which has effects in the realm of moral as well as of economic values. If there were to be formulated an economics of personal conduct, it surely would give a large place to the comparison between present and future enjoyments.
The problems of abstinence and time-value appear in prodigality, in much heedless pleasure, and in many forms of vice. Prudence, always included among the virtues, is the faculty of recognizing not only future costs and dangers to be avoided, but the greater future joys that may be gained at the price of present sacrifice. It is not without reason that in the discipline of youth in civil and military life, the cultivation of thrift, order, and promptness are in every land deemed to be fitting means, when wisely employed, of developing moral virtues. Shiftlessness in the performance of tasks for one's own good is almost certain to show itself in failure to fulfil agreements with others, resulting in excuses, falsehood, and degeneration of character.
Time-value is involved in prodigality. Often the estimate of the present good is unduly high, viewed in the light of wider experience. Goods that meet momentary desires make an exaggerated appeal to untrained minds. The child, the spendthrift, the savage, can not properly estimate the relative values of present and future. The drinker exchanges the hopes of a worthy life for the exhilaration of the spree. The reckless, underestimating the future penalties of disease, insanity, and death, barter health and happiness to gratify the moment's impulse. Indulgence in social pleasures, if secured at the price of lost sleep, weakened health, and debauched character, are loans from the future made by youthful prodigals at usurious cost. If no one ever paid more than a moderate premium for the gratification of his present whims and impulses, most hospitals, drug-stores, and medical colleges would close, and half, if not all, the prisons would be empty.