10 Discounting

Ecological Fallacy

Solow (1974) like many other defenders of standard economics, resorts to an old paper of Harold Hotelling (1931) to convince us that neoclassical economists have not ignored the problem of intergenerational allocation. But he overlooks the important point that Hotelling’s analysis referred to some known amount of resources owned by an individual who discount future royalities. Of course, Hotelling was completely correct about the last point. Any individual must certainly discount the future for the indisputable reason that, being mortal, he stand a chance of dying any day. But a nation, let alone the whole of mankind, cannot behave on the idea that it might die tomorrow. They behave as if they were immortal and, hence, value future welfare situations without discounting.

Georgscu-Roegen (1986) The Entropy Law and the Economic Process in Retrospect (pdf)