APPENDIX

APPENDIX TO CHAPTER XX§ 1 (to Ch. XX, § 17)

Waiting as a Cost

If waiting were a cost like other costs, it would be subject tothe law of discount, according to which the capital-value of anyarticle of wealth is equal to the discounted value of its expectedincome less the discounted value of its expected outgo. Thevalue of the tree which has been mentioned, taken, say, at theend of 14 years, will actually be about $2, and this is the dis-counted value of the $3 of income which the tree will yield atthe end of eleven more years. According to what I believe tobe the correct theory, this $3 is the only future item involvedin this example. But according to the theory here criticised,this is not the case. Besides this positive item of income, $3due in eleven years, we have to deal with a series of elevennegative items called “waiting” distributed through theseeleven years, and amounting to the interest — about 10 centsfor the first year and gradually increasing to 15 cents for thelast year. If the waiting-items were bona fide annual costs —like, for instance, actual labor-costs of pruning the trees — theprocess of discount would properly be applied to them. Thatis, if these waiting costs really exist, they ought to be discountedand their discounted value ought to be deducted from thediscounted value of the $3 of expected income. But we shouldthen have to assign as the value of the tree not the correct figureof $2 but an incorrect figure of much less. The fact that wecannot thus discount so-called “waiting” costs as we discountall true costs is a proof that the “cost of waiting” even if weinsist on calling it such differs radically from true costs. 1

If we are to have any logical, usable self-consistent theory ofincome and capital, all items of income, positive or negative— the negative ones being “costs” — must be discountable.

1 See Bohm-Bawerk, Recent Literature on Interest (1884-1899), p. 35.

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