No Free Lunch: Economics for a Fallen World: Third Edition, Revised

Chapter Sixteen: Valuing the Future - Concepts in Capital & Finance 393 INTRODUCTION Many of you reading this introductory text will still be making the decision as to which field of study and future occupation you will pursue. How are you going to make this decision? This will hopefully be made with much prayer and counsel from parents and other mentors. While most would prefer a text or email from God saying where He wants us to go, it doesn’t usually work out that way! One of the considerations in your decision will be your expected future salary, as well as how much it will cost for any training you may need. Yes, doctors get paid well, and yes, you can effectively serve God as a doctor. But it takes a long time to become a doctor, and there are many ways you can serve God that don’t require as much time in preparation. Isn’t your time worth something? Indeed it is! While we can praise God that many will decide to serve God by serving us and becoming doctors, others will make different choices and serve us in other ways. In part, they will make this decision based on an assessment of future costs and benefits (broadly speaking, not just monetarily). In this chapter you will be provided with a framework for comparing monetary costs and benefits across time as we enter the world of finance and capital valuation. This chapter will synthesize many of the concepts we’ve learned in previous chapters: interest rates, entrepreneurial appraisal, risk and uncertainty, and production in time. Be prepared to go back and review that material as necessary—we’re going to put it all together here. CAPITAL IN TIME In chapter 7 we found that production of goods and services had a structure to it, because production necessarily extends across time. Raw materials might be mined first, and then steel panels made, then a car fender stamped, and then a dealership might wash a new car for their showroom floor. The decision to open a new mine might be decades before the output is finally sold as a component of an automobile or refrigerator. Of course this is just a sampling of possible production activities, and they are not simply linear in time—each step of the way may have literally hundreds of activities happening simultaneously that all cooperate in the ultimate production of an automobile. To give you a better appreciation, it’s worth another look at this video from an earlier chapter. I, Pencil