Book Review: Discounting the Future: The Ascendancy of a Political Technology

Benedetto Croce (1941: 19) famously wrote, “all history worthy of its name is contemporary history . . . preoccupation with present problems impels us to do research on past problems.” To put it another way, “to retrieve a certain past is inevitably to take a political stand within the present” (Eagleton 2024: 152). Equally, commitment to a particular agenda can impel us to evade, disavow, or even forbid historical research. This can be done via the application of a scientific veneer that occludes the very political nature of the maneuver being performed in the service of particularist ends, such as the “fisheries science” that ultimately destroyed sustenance fishing in Newfoundland (Liboiron 2021: 139) by ignoring the accumulated wisdom of the generations whose livelihood depended on the latter.

As Liliana Doganova makes clear, discounting similarly rewrites the past in order to control the future. It is a political technology whose application has important ramifications for organizations, economies, and culture. Discounting’s “mundaneness hides significant consequences for how we have come to conceive of the future and because its technical aspects hide fundamental political questions about the capacity of certain actors and the incapacity of others to picture the future and act on it” (8). By charting its development over almost two centuries, Doganova provides detailed evidence of the class-based ends to which this technology has been applied.

The book begins by noting that “climate inaction is perfectly justified by the tools and procedures that governments use for the sake of making decisions with objectivity and the general interest. . . climate action is at odds with rational decision-making” (9). The logic of discounting is such that the future is worth less than the present (15) while the past is of no value whatsoever, except as a source of data to be extrapolated and manipulated before being discounted back to the present in cases of radical uncertainty. Doganova employs biotechnology research and its qualitative complexity to illustrate her point. Discounting “transforms the exercise of reading a crystal ball into a classic calculation process” (190). Ultimately, everything becomes reduced to a question of present value. This is defined as the return on investment to be expected in the future but, to the degree dependent on the discount value, the expected return depreciates as the future is extended.

This somewhat brutal presentism has been attacked as fatal for innovation (Hayes and Abernathy 1980; Hayes and Garvin 1982; Christensen et al. 2008). Nevertheless, and despite the inquests regarding the North Atlantic financial crisis of 2008 in which shareholder value maximization was identified as a key culprit with respect to late capitalism’s failings (Martin 2011; Foroohar 2016), discounted cash flow (DCF) analysis remains the bedrock of modern financial analysis.

Doganova traces the origins of discounting to mid-nineteenth century Germany, where landowners and state authorities attempted to evaluate forests, ultimately in conflict with the poor, whose foraging came to be regarded as detrimental to the “scientific forestry” that was the basis of enclosure. As editor of the Rheinische Zeitung, Karl Marx was prompted to take up consideration of economic questions (Marx 1904: 10) when he published various articles on what Peter Linebaugh later identified as a contemporaneous trend throughout what is now Germany, as state power was brought to bear on the erosion of “customary rights” (106; see Linebaugh 1976; Hölzl 2010). Martin Faustmann’s formulation eventually prevailed with respect not only to “scientific” forest management specifically, but with the practice of discounting more generally. It brought together the apparently contradictory questions of how to place a value on a forest and how quickly its trees should be felled (119). The optimization of the latter would maximize the former. In the process, customary rights and traditional practices could be suppressed and eventually forgotten.

Initial implementations of the formula were controversial because of the shorter times it allowed for felling, hampering its more widespread adoption until later in the twentieth century. Nevertheless, in a recurring theme of this book, the forestry economist interviewed by Doganova points out that Faustmann’s formula itself does not necessarily accelerate harvesting, because of the adjustability of the discount rate. In other words, the supposedly objective technology that is discounting becomes very subjective with respect to the discount rate itself, which can be set as arbitrarily as necessary to be deemed acceptable (121).

The next impetus driving the development of discounting came from Irving Fisher’s treatment of capital as having value because of the income it is expected to generate (44). The rate of interest, theorized by Fisher as “an index of the preference. . . for a dollar of present over a dollar of future income” becomes central to “a theory of value that simultaneously and paradoxically both values and devalues the future” (45). The future is the source of value, but it is less valuable than the present. How much less valuable depends on the discount rate—for Fisher, the rate of interest. Fisher formulated discounting as it is applied today, and justified the universality of its usage because everything could be seen as capital “as soon as it engages in a particular future-oriented relationship with time” (52).

The seemingly contradictory effort of historical sociology, aiming to treat discounting as a situated practice yet dealing directly with Fisher’s abstract concept, is resolved via consideration of discounting’s performativity: “the characteristic of a statement that helps bring into existence the reality that it purports to describe” (53). More appropriate is Michel Callon’s idea of “performation,” whereby the theoretical statement or formula is adjusted together with the reality it purports to describe until they more closely correspond, following “specific investments” required to achieve this correspondence. Nevertheless, the deliberate replacement of the labor theory of value by an ahistorical utility-based theory of value in order to evade the troubling ramifications of the former underlines what was at stake during this period of capitalist development (Henry 1990). Fisher’s “principle of capitalization” similarly rooted the question of value in the present, albeit by effectively differentiating (and eventually supplanting) market or spot values with discounting of expected future income streams that comprise present value. In so doing, it further removed all consideration of value based on the labor required to create the “capital,” focusing instead on the entrepreneur’s reward for taking on risk. The consequences of this are explained in subsequent chapters.

Doganova attributes to discounting the eventual financialization of the corporation, embedding the primacy of the investor’s view in decision-making processes (130). Its apparent objectivity gave it similar authority in the cost-benefit analyses employed in the public sector. Much credit for this dissemination of discounting is attributable to economics professor (latterly at Columbia University) and business consultant Joel Dean (1906–1979), whose applications of Fisher’s principles remain foundational to managerial economics and corporate finance. In Doganova’s reading Dean did much to lay the groundwork for the agency theory that is the basis of the hegemonic “shareholder value” doctrine that dominates business practice. Along the way, however, the ideological aspect of discounting evolved: “The justification for discounting was no longer that time had a cost or that the future was distant and uncertain, but that capital should be rewarded for the services it renders, for the profits it generates. The future disappeared” (144). So did the entrepreneur—now stockholders had priority, given the separation of ownership and control.

The elevation of the investor more generally is of particular significance when considering the contrasting approaches to valuation highlighted by the overthrow of Salvador Allende’s government by the Chiléan military in 1973. Allende’s nationalization without compensation of the copper mines in 1971 was based on a historic cost accounting method that factored in the underpayment of labor and taxes over the lifetimes of the mines affected. Not surprisingly, the private owners did not agree with the valuation. Nevertheless, Allende’s constitutionalization of the state’s ownership of the mines was retained under Augusto Pinochet’s 1980 revision to the constitution.

José Piñera Echenique was one of the “Chicago boys” who occupied various government positions under Pinochet before becoming minister of mining at the end of 1980. The challenge, as he saw it, was “to reconcile public ownership and private investment, attracting the latter without questioning the former” (219). Interviewed by Doganova, Piñera explains the logic behind how, as he describes it, he cut the “Gordian knot” that retention of constitutionalized state ownership embodied. Starting from the premise that an asset “has value to the extent that it can generate future profits” (221), which thereby embedded the logic of discounting into the law, Piñera conceived of the “concession,” effectively the contract awarded by the state corporation to the private investor, whose investment would be valued according to the present value of expected future incomes, subject to a discount rate determined in the negotiation of the concession. The threat of expropriation was addressed by the indemnification of the concession, with the indemnity equal to the present value of its future net cash flows (222). The concession, granted or withdrawn subject to judicial ruling, would be of indefinite life and free of state interference, requiring only an annual payment from the investor to the state.

The implications of Piñera’s maneuver have been far reaching and constitute yet another confirmation of Pinochet-era Chilé’s laboratory-like status. Legal scholar Toni Marzal “has meticulously traced the spread of DCF and the associated principles of ‘full compensation’ and ‘fair market value’ in arbitral practice” (225). His work has focused especially on investor-state dispute resolution of the kind that, with the founding of the World Trade Organization, came to characterize neoliberal trade arrangements (241; see Marzal 2021).

The World Bank in 1996 hailed Chilé’s mining reforms as a model to be emulated (239–40). It has since been adapted and implemented widely in the effective privatization of public services and infrastructure, designed first and foremost to protect the interests of the investor, whose expectations of profit have superseded regulatory concern for service quality or public safety, as demonstrated so relentlessly in Britain (Bowles 2022).

Discounting the Future explicates the evolving formulations and applications of a most political technology with great insight, supported by a rich bibliography. As a work of historical sociology that highlights the situatedness of the practice it seeks to understand, it sheds light on the material bases, economic interests, and ideological ramifications of its subject. As such, it very much belongs in the library of political economy.

Michael KeaneyMetropolia Business School Vantaa 01600, Finland Email: [e-mail]