Evolution of the Application of Present Value to Valuation of Non-monetary Resources

Abstract

The purpose of this paper is to report the outcome of research that sought to answer the question: what were the significant steps in the evolution of the application of present value to valuation of non-monetary resources? The research findings challenge the generally accepted legend that the application of discounting to economic problems involving non-monetary resources did not occur until the 19th century. The findings show that the application of discounting progressed from ‘pure-monetary’ resources, such as loans and annuities, to ‘semi-monetary’ resources, such as land, where there were contractually agreed cash inflows and non-contractual outflows, and finally to ‘non-monetary’ resources, where there were no contractually agreed cash flows. It is reported that in the aftermaths of the execution of Charles I and the Great Fire of London, property investment was facilitated by a heightened understanding of the calculation and use of discount tables. Another significant 17th-century stimulus was an ongoing discourse that sought to encourage landowners to establish and maintain plantations to satisfy the navy's timber needs. An important outcome of this nationwide discourse occurred in 1730, when an Exonian surveyor and accountant used present value to solve the valuation problems of standing timber under both sustained and intermittent management.

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