The Fruit of Holiday Reading

by | Jan 1, 2014 | Uncategorized

Holidays are a great time to catch up on some reading.

The Economist Holiday Edition taught me about William Petty:

“Petty, who died at Christmas in 1687, was also an innovator in the world of theories. By tinkering with data and simple models, this little-known Englishman came up with many of the ideas …that form the bedrock of modern economics.” “Sir William Petty FRS (26 May 1623 – 16 December 1687) was an English economist, scientist and philosopher. … He developed efficient methods to survey the land that was to be confiscated and given to Cromwell’s soldiers. … It is for his theories on economics and his methods of political arithmetic that he is best remembered.”(1)

The Economist credits Petty with three ideas: valuation, discounting, and the transparent use of data that are foundations of Impact Infrastructure’s work:

“Petty was granted an estate. He puzzled over how to value it. He first calculated its benefits: if cattle grazing in a field put on a certain amount of weight each year, the market price of the extra meat was a logical measure. Next he needed to work out how many years’ income to tally. Men cared about their children and grandchildren, he reasoned, but concerns for the future were finite. Using data on the extent to which generations overlapped, Petty reckoned 21 years was right. He had jumped from a blank sheet of paper to an embryonic version of the “present value” calculation at the heart of modern finance.”

Another important contribution is his transparent use of data to explain the world. Petty was personal secretary to Thomas Hobbes “… whose empiricism was a deep influence. Collecting data and making real-world observations became central to his work.”(2) And, “like modern economists, he set out to prove his claims by finding data and statistics, rather than relying on anecdotal evidence.”(1)

Value is the benefit stream that can be derived from an asset. Future benefits are worth less than current ones. And include your data with everything you write. In the late 1600’s.

Two final quotes:

“He wrote rigorously, but also with concision and humour.”(1) “That he included data with everything he wrote put him at risk: later studies found different results.”(2)

Would that we should all be so bold, concise, and engaging.

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