MIT PROGRAM IN SCIENCE, TECHNOLOGY, AND SOCIETY
SPECIAL SEMINAR Present Values: Financial Calculation and the Price of the Future in the Eighteenth Century DR. WILLIAM DERINGER COLUMBIA UNIVERSITY ABSTRACT No computational problem is more fundamental to the logic of financial capitalism than “present value,” the question of how to put a price today on property in the future. How much would you pay today for $100, if you were only going to receive that money in fifty years? In modern economic practice, one particular calculation has emerged as the rational way to solve this problem: exponential discounting, which relies on the imagined operation of compound interest to translate future into present. (Your fifty-years-from-now $100 is worth $8.72, assuming a 5% “discount rate.”) Notably, it is a calculation that tends to put a remarkably low price on the distant future. But it was not always obvious that this exponential perspective was the single “right” way to price the future. During Britain’s “financial revolution” in the early eighteenth century, for example, people invoked various plausible models of present value, which at times came into open political conflict. One such case came in the debates over the “Equivalent,” a complex and contentious payment made as part of the Anglo-Scottish Union of 1707 that aimed to compensate Scottish citizens up-front for taking on new tax burdens in the future. Over time, a series of computational conflicts like the Equivalent controversy helped to consolidate a new civic epistemology in Britain, characterized by a distinct reverence for the objectivity of numbers and grounded upon certain newly-authoritative practices, including exponential discounting. By recapturing the confusions of the past, the history of financial calculation can unsettle seemingly timeless practices of economic reasoning—and open new and productive confusions about our global future in the present moment. 4 PM WEDNESDAY 5 FEBRUARY 2014 E51-095 MIT CAMPUS | 2 AMHERST STREET
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