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Fri Mar 31 17:18:41 2006
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Professor Wiecet's query was 
 
On Wed, 31 May 1995, William M. Wiecek wrote: 
>  
> Approximately when did the concept of discounting future  
>income streams to arrive at present value become a  
>commonplace among economists?   
 
There was a survey article that appeared in the Journal of Economic  
Literature within the last decade that traced the present value calculation 
technique as it emerged as a customary business practice to reply the  
famous and infamous "payback period" rule.   I can go down the basement and 
hunt through the back issues but I hope one of us remembers the name and  
article. 
 
On a related matter.  Assets such as land were often valued as "x years  
purchase."   Suppose the annual rent were $l,000 and land were selling for  
10 years purchase then the land's price or present value would be $10,000.  
This is equivalents to computed the discounted sum of future rentals at  
10%. 
 
Petty ask why land which produces an infinite flow of net benefits should  
sell for a finite market amount and concluded that its values is equal to  
the sum of rentals over the time period x where x is the number of years  
three generations coexist on earth.  This means the grandparent, sibling  
and grandchild.  If my memory serves the value of x that Petty used was 21  
years.  I shall leave it to others to calculate the implicit discount  
factor. 
 
I wonder if these historical tidbits are what Professor Wiecet wanted from  
us? 
 
L. Moss 
 
 
 
 
 

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