We are now ready to play "Guess That Time Period," the exciting game where eager contestants read a series of newspaper excerpts and attempt to guess the year those articles were originally published. The following are excerpts from three newspaper articles. Read them carefully. Try to figure out what year these articles first appeared in the paper. Good luck!

Yes, there once was a time when this nation quaked in fear at the prospect of an imminent timber famine. It was bad. How bad, you ask? Bad enough that pastors asked their congregations to avoid the use of evergreen trees to celebrate the Christmas holidays.¹ Yes, it was very bad. Gloom and doom filled the newspapers. America was using up its precious natural resources. The country was running out of trees and "commercial disaster was inevitable." The most reputable experts of the time agreed. The leading political leaders of the time agreed. Something had to be done. And indeed, something was done. Quick now--were you able to figure out what year these articles were published? Here's a hint. It was because of this great outcry for action that the federal government created the National Forestry Service.

You see, the prevailing wisdom of the time was that lumber firms were good at things like cutting down existing stocks of trees. But they couldn't be counted on for doing things like growing new trees. And that was a problem. Because as the newspaper excerpts make clear, at the rate trees were being cut down, there would soon be few left. And so, with great dispatch, the United States created the National Forestry Service to place vast tracts of land under the control of the federal government. The idea was that under the federal government's careful stewardship, this land could be guarded against wanton lumbering. And in this fashion, the country would be assured that there would be sufficient lumber for their children's children.

Have you figured it out yet? All the excerpts are taken from articles that appeared in the prestigious New York Times.² The President was Theodore Roosevelt. And the years were 1900 to 1908. "What's that?" you say. You don't remember reading in your history books about any great timber famine in the early twentieth century? Funny thing was, after all the hype and hysteria about a coming timber famine, no great timber famine ever occurred. The story about the great timber famine that never was is a fascinating story of how profit-driven firms responded to rising lumber prices by both increasing the production of lumber and its substitutes, and adopting new technologies to conserve on the amount of lumber.³

This would be just an amusing little footnote in American history except for one fact. Driven by fears of a great timber famine, the federal government began an aggressive program of removing land from the private sector--an effort that continues to the present day. For the idea that the government needs to "protect" resources so they will be available to future generations is an idea that is very much alive and well. As of 1990, local, state, and federal governments owned approximately 40 percent of the American land mass. A little over a third of the entire country is directly owned by the federal government. And while some of this land has been procured for military purposes, the great majority is set aside in order to protect resources of one kind or another from being depleted by the private sector.

Perhaps you still find yourself unconvinced that the private sector can be counted on to serve as stewards of precious natural resources. After all, maybe the reason we have plenty of lumber available today is precisely because the federal government so wisely saved precious timberlands from commercial lumbering many decades ago. This is an interesting hypothesis. And one that is easily tested. What do you think is the correct answer to the following question is:

Ten percent? Twenty-five percent? Fifty percent? (Remember, 40 percent of the entire country is owned by the public sector.) In 1995, the actual figure was approximately 80 percent.⁴ Despite the fact that trees must grow ten or more years before they can be harvested for profit--and that the land on which the trees grow can be used for little else--over 80 percent of domestic lumber consumption is satisfied by trees grown on private forests. Companies like Weyerhauser and Georgia-Pacific patiently grow trees for profit on millions of privately-owned acres, providing a powerful refutation to fears that "the investment is too large and the returns too slow to make it attractive as a business proposition."⁵

In the remainder of this chapter, we want to address two final questions. How does all this tie into our Profit Tables? And what does all this have to say about how societies should allocate resources across generations? To answer the first question, let's first consider how a lumber company would approach the decision to grow trees for profit. As has already been pointed out, the problem with growing trees is that the firm incurs costs right now, as it buys land and plants seedlings. However, the benefits from planting trees is received by the firm only after many years later. To see how we can represent this problem in our Profit Table, we have to introduce the notion of PRESENT VALUE.

Suppose the market rate of interest is 10 percent. Then if a firm put $1000 in the bank, it would receive $1100 back ($1000 times 1.10), one year later. Thus, the PRESENT VALUE of $1100 a year from now is $1000. That is, it would take $1000 in the bank today to yield $1100 in principal plus interest next year. Suppose a Georgia pecan farmer determined that he could sell one-year old pecan trees to nurseries for $5 a tree, and that he could grow 220 pecan trees on an acre of land. Suppose further that the costs of renting the land, planting the seedlings, etc., was $800. So an initial outlay of $800 resulted in a return of $1100 (220 times $5) a year from now. In terms of our Profit Table, this transaction would be represented by the following.

Note that we do not enter the $1100 the farmer would earn next year on the Revenues line of the Profit Table. Instead, we enter the corresponding present value amount of $1000. In effect, the pecan farmer says, "Hey, I would have to put $1000 in the bank today to produce $1100 in revenues next year. But I can get the same return next year by putting only $800 into pecan trees. No way am I going to pass up a profitable opportunity like that. What do you think I am...nuts?"

Of course, the farmer would have come to precisely the same conclusion if he had compared the rate of return on his pecan tree investment with the market rate of interest. Earning $1100 next year on an $800 investment today is a 371/2 percent rate of return, which sure beats the 10 percent market rate of interest. This demonstrates that our Profit Table is easily generalized to include cases in which the firm's revenues and costs occur over time. Present values are based on interest rates, and interest rates are used to identify where resources will have their highest valued use over time. Since firms employ present value considerations to make decisions, we can be sure that letting profit-maximizing firms allocate resources across time maximizes the happiness of all generations of society, and not just the current generation.

We are now ready to address the questions raised at the beginning of chapter 37, "How should society trade off the well-being of the current generation with the well-being of the 'seventh generation into the future?' Our answer to this question is that WE SHOULD TREAT OTHER GENERATIONS NO BETTER OR WORSE THAN WE TREAT OURSELVES.

If we follow this approach, then the impact of a decision 150 years from now should not be given the same weight as an impact felt 1 year from now. The reason is simple: we ourselves weight the present more than the future when it comes to maximizing our personal welfares. Since society is nothing more than the collection of its individual members, why should "society" have a different rule for allocating resources than the rule its individual members use in their own lives? In other words, this approach says that we should treat the members of the seventh generation just how we would treat ourselves if we were to live that long. No better or no worse. Once this is seen, it follows that our current use of interest rates does not "systematically undervalue the future consequences of our decisions." In contrast, it provides precisely the right value in weighing out the consequences of our actions on future generations.

While we don't claim any higher authority for this social rule of resource allocation, it does come remarkably close to religion's golden rule of "loving your neighbor as yourself"--even when one's neighbor is seven generations removed. And isn't that remarkable? The free-market, capitalistic approach to allocating resources across generations essentially implements the golden rule of moral behavior as advocated by the world's great religions. That's definitely food for thought.