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

Abstract

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...