Chapter 6

                       I N V E S T M E N T


               with a life-cycle cost analysis of
                   one individual human being

                (c)  1991, 1993 by David G. Hays
                      (c) 1995 by Janet Hays
                      
6.1. INVESTMENT
6.2. OBSOLESCENCE AND UNCERTAINTY
6.3. NET WORTH:  PERSONAL AND PLANETARY
6.4. NET WORTH, ENVIRONMENT, AND THE EVOLUTION OF TECHNOLOGY


     Capital is a concept of rank 3, but investment in skill
     and land were necessary in ranks 1 and 2.  Sapients who
     believe in the future will attempt to prevent the net
     worth of Earth from declining.



6.1. INVESTMENT

     6.1.1.  Stone Tools and Hides Require Skill
     6.1.2.  The Land
     6.1.3.  The Factory System


     The main investment in rank 1 is the acquisition of lore. 
     For rank 2, the improvement of land for agriculture requires
     large investment.  In rank 3, capital is assembled to invest
     in the ensembles of machines that produce large quantities
     of goods--and to invest also in transportation, communica-
     tion, urban systems, and education.

     Day by day a person works and uses the fruits of his (or
her) labor for subsistence (food, clothing, shelter), for ritual,
for pleasure, and so on.  Whatever the rank, if each day's con-
sumption equals each day's income, there is no investment.

     Investment is the conversion of a portion of income into
capital.  The purpose of investment is to increase expected
future income.  Consumption yields instant gratification; the
investor has to postpone gratification.  The future increment
must be larger than the present decrement to justify investment.
Maybe I will put aside a dollar a day this year, but I want to
get back two dollars a day next year!

     The theory of rank says that the nature of capital changes
from rank to rank, according to the technology.  Figure 6.1
( Fig_6_1* ) contains a sort of chronology of investments.


6.1.1. Stone Tools and Hides Require Skill

     Rank 1 lives by hunting and gathering.  In fact, most people
of rank 1 seem to live, or to have lived, mostly by gathering
with occasional feasts when the hunters get lucky.  Emphasis on
hunting appears to be sexist; women do the bulk of gathering.
What do rank 1 people have that they do not consume on the day
they get it?  Some weapon-tools, a little clothing made from
hides, and very simple shelter.  My impression is that they are
willing to leave these things behind and make new ones.  An igloo
does not pin down an Eskimo as your home holds you.

     So rank 1 has almost no material capital; but it does have
skill.  The best over-simplification is probably that the rank 1
person's head is as full as yours or mine.  Our knowledge is more
specialized, and I assert that our knowledge is more abstract.
One of us can teach video, one can repair automobiles, and so on;
I can't teach video, and I suppose that only a few of us can.
The rank 1 person is also a specialist, in a way that is not so
obvious:  The rank 1 person's concrete skills are specific to an
environment, a climate, a range of vegetation and animal life, an
area on a map.

     But these skills are considerable, and take time to acquire.
Little or none of them are acquired in situations comparable to
schooling.  Mostly the children watch adults, help, imitate, and
play.  No doubt they get some verbal guidance, orally since there
is no writing.  But not a great deal.  The investment necessary
to acquire skills is made in childhood.  Children work less than
adults, or at least less productively.  A rank 1 society does not
put its children to doing routine simple tasks and thus preclude
their acquiring adult skills, as Britain did during the worst
part of the Industrial Revolution.  But at puberty the children
must be ready to play adult roles.  The rank 1 adult's skills are
as fixed as our speech patterns.  Few of us learn a second
language after puberty with the exact speech patterns of a native
speaker, and no one in rank 1 acquires a new skill after puberty.


6.1.2. The Land

     Rank 2 lives by agriculture.  A small part of the population
(1% to 10%) lives by specialized craft:  pottery, weaving, metal
working, warfare, government, ritual.  The rest are farmers.  The
major capital is therefore land.  Those who occupy the most pro-
ductive land live best.  But the productivity of land is not
fixed; a piece of land can be made more or less productive by
human activity.  Some ways of improving land are plowing, manur-
ing, removing rocks and bushes or even trees, draining swamps,
and applying water to dry land.  These activities take a lot of
work, and produce nothing for immediate consumption.  The im-
provement of land is an investment.

     Whereas I believe that much change in human life follows
from the voracious appetite for experiences, I do not believe
that plowing and manuring come that way.  The standard theory
says that population pressure forces investment in land improve-
ments.  The extra people have to be fed from the same land, so
the land has to be made more productive.  For the present, at
least, I accept the standard theory.  The first beginnings were
in Egypt and Sumeria during the 4th millenium BC. 

     Contemporary peasants* lives on much the same plan as the
first peasant.  In Egypt, the life of the peasants, the Fellahin,
has continued over nearly 6000 years without ever a collapse back
to hunting and gathering.  Europe adopted agriculture with the
plow at a rapid pace in the beginning, and the Romans supervised
farming on much of the continent. But a period of rank 1 life
intervened, and farming had to be spread again after AD 1000.  In
India and East Asia also, there have been rises and declines.
North America did not have the plow until Europeans brought it,
so it was the Europeans who cut down the forests and plowed the
grasslands.

     Since the tasks of the farmer need tools that take time,
skill, and material to make, tools become valuable investments.
Plows, carts, animal harness, and sickles are examples.  Storage
containers, including clay pots or woven baskets and also stone
barns, are equally a part of the peasant's capital.

     Among many authors on intensification of agriculture, I
recommend Boserup* without accepting all her conclusions.

     Skill is as necessary to the people of rank 2 as it is to
those of rank 1; children still watch adults to acquire the
skills they will use later.  Schools are rare.  Plato may conduct
an academy for a few Athenians who need never work or, perhaps,
even fight.  Where peasant villages live at rank 2 in a nation
with some characteristics of rank 3, the central government may
assign a schoolteacher to teach the rudiments of the national
language and culture, but not to teach farming.

     For the most part skills pass from parent to child and so
the potter's child becomes a potter, the farmer's child a farmer.
In early periods, this code is loosened only by the possibility
of adoption; later, apprenticeship is invented as a kind of
quasi-adoption.  Specialized crafts are often practiced by
itinerants, who live somewhat outside the societies they serve.

     Another kind of investment made in rank 2 is the storage of
grain for seeding next year's crop and for security against a
poor harvest.  Even the reservation of seed grain is investment.
In a bad year, the farmer is acutely aware of postponing gratifi-
cation:  He and his family are hungry, but they must hold back
now or starve next year.

     And fallowing is also an investment.  To leave a part of the
land without a crop for a year, or for 25 years, is to postpone
income.  On much land, the methods of rank 2 devastate the soil.
Left alone for a time, the soil restores itself.  Over the long
run, the land will yield better crops thanks to fallowing.  And
peasants* , who consider themselves temporary managers of the
eternal land of their lineage, do not care if they die before the
benefit can be taken; their descendants will have it.

     In the end, land is the basic capital of rank 2.  Tools and
skills are oriented to improving the land and extracting crops
from it.


6.1.3. The Factory System

     Rank 3 has factories.  If the movement toward rank 4 had not
begun in the nineteenth century, it seems to me that application
of industrial methods to farming would still have reduced the
proportion of farmers and farm laborers in the population to
about the same low level that we see today:  Instead of 1% to 10%
off the farm, we now have 1% to 10% ON the farm.  Rank 3 needs
most of the labor force in its factories.

     Creating a new factory is for us the most familiar kind of
investment.  Someone has to pay for the land, the building, the
power source, the machines, and the raw materials.  All that
money has to be taken out of day-to-day consumption.  If you want
to start a factory, however, you had better set aside a large
part of your capital for the costs of organization.  You will
need an architect, an engineer, purchasing agents, a hiring
office, and trainers; also sales people.

     Mumford calls human organization the "megamachine", and
thinks of it as a model for all mechanical devices.  Even if he
is right, the rank 3 organization is as different from that of
rank 2 as the rank 3 machine is different from the rank 2 tool. 
The number of persons organized may not be greater, but the
number of kinds of jobs to be done is greater by far, and the
bulk of activity is performed in larger organizations even if the
maximum size of organization is not greater.  (If you count the
armed forces of the United Nations in World War II as a single
organization of rank 3, then it is surely larger than any that
came before, so the maximum also goes up.)

     Rank 3 capital, then, is organization of material and human
parts to produce goods.

     See Beniger and Noble in AMERBIBL* , as well as almost any
general history of modern technology or any economist.

     Education is necessary in rank 3.  Obviously factories
require engineers, technicians, and supervisors.  But even the
assembly-line worker has to be able to understand complicated
oral instructions.  The rank 3 worker cannot acquire a skill by
apprenticeship and exercise it for a lifetime; change is too
fast.

     To change jobs during one's working lifetime may be
     necessitated by progress and is possible if most train-
     ing is generic.  ( Gellner* pp. 32-33)

The moral is that we have stronger reason to improve education
than most observers realize (but see Montagu* .)

     Rank 4 capital, I think, will turn out to be information.
Working skills, land, and factories will still have value.  But
rank 3 tends to its farming in a rather casual way; of the flux
of money in rank 3, only a tiny fraction goes to the improvement
of land.  When rank 4 is fully established (if it ever is), only
a tiny fraction of the whole flow of funds will go to the im-
provement of factories.  Only a tiny fraction of labor will be
applied to farming and manufacture, since robots will do most of
the work.

     Information is not merely capital; it is _second-order_
capital.  The purpose of investment is to increase productivity
of land and labor; the economic purpose of information is to
increase the effect of investment.  Mokyr calls his book _The
Lever of Riches_, emphasizing that "technological creativity was
at the very base of the rise of the West" (p. vii AMERBIBL* ; see
also my review).  I suggest that technological creativity is the
root of all increase in productivity, from the beginning; but
rankshift changes the nature of information, and the effect of
the shift from rank 2 to rank 3 is what Mokyr is thinking about.

     We do not live in a rank 4 world; we may have to go through
dark ages before rank 4 comes, as Europe did between the fall of
Rome and the Renaissance.  Rank 4 may never come.  But if it
does, I speculate, the transformation will be as profound as the
one that began in Florence around 1400.  What we know as work
will almost disappear; human effort will still be applied to
research and development so as to improve economic systems; but
perhaps more effort will go into emotional growth and mainte-
nance, and into the understanding and improvement of social
relationships, from friendship and family to global community.


6.2. OBSOLESCENCE AND UNCERTAINTY

     6.2.1.  Uncertainty
     6.2.2.  Obsolescence


     Uncertainty is prevalent in every rank.  Technology is
     sometimes applied to manage uncertainty, but can also
     amplify risk.  Obsolescence became an issue only in rank 3;
     before that, things wore out before new inventions supplant-
     ed them.


     Remember the story (it gets retold from time to time) about
the man who invests a dollar and hibernates for thousands of
years and wakes up the richest man on earth?  It is fantasy.
Obsolescence and uncertainty are two good reasons why no invest-
ment can be left untended for a long time.


6.2.1. Uncertainty

     One can argue that the whole of cultural evolution, includ-
ing the evolution of technology, has been driven by the need to
reduce uncertainty.  Hunter-gatherers have no guarantee of
finding food, and they are exposed to dangerous animals, storms,
disease, and so on.  Farmers have no guarantee that the weather
will allow their crop to flourish.  Manufacturers have no guaran-
tee that the market will absorb their product, and new competi-
tors can appear at any time.  Even rank 4 will no doubt have to
face uncertainty.

     Change in itself is a source of uncertainty.  The inventor
cannot be sure the invention will come, and the society cannot be
sure that a new invention will serve effectively:

     when the basic survival needs of a people are at stake,
     especially their food supplies, they tend to take a
     low-risk approach to suggested innovations.  (Pacey,
     1990, p. viii BIBLNOTE* )

Mokyr ( AMERBIBL* ) considers "willingness to bear risks" as a
factor in technological progress (pp. 157-159).

     Yet new ways can protect against risk, or seem to do so.  A
herd of domesticated animals is more readily available than a
wild population when meat is wanted (but can be destroyed by a
disease or lost to raiders).  The entrepreneur who brings workers
together in a factory may feel safer than one who puts out goods
to a hundred cottagers for craftwork (but the whole factory can
burn down).  I don't think that uncertainty is the sole driving
force, but I give it partial credit.

     The greatest uncertainties in life are not economic, and are
faced not by inventors but by thinkers.  Rankshift alters our
view of these uncertainties, as science took the uncertainty of
the gods' intentions out of everyday life.

     Some philosophers have written that the foundations of
science are built on quicksand, because we cannot know that the
future will be like the past.  Will e = mc2 a few minutes from
now, as it did a moment ago?  No one can be certain.  When I
first encountered those philosophers, I was pretty upset.  Since
then, the idea of _knowing_ has been crushed by blow after blow,
so I don't expect you to be upset.

     We must aim at truth, said the late Joseph R. Levenson,
     "even if the truth cannot be known."  [_Confucian
     China_ 3:89]  The fate of Kuhn's theory of science
     depends partially on the extent to which this tension
     is in fact bearable."  (Hollinger, p. 392 PRDGMBIBL* )

We find ourselves, then, both more and less uncertain than ever. 
And I cannot imagine what rank 4 thought will conclude on this
issue.

     The philosophy of capitalism would have it that uncertainty
justifies profit.  The longer the interval between effort and
reward, the less certain the reward.  This philosophy, of course,
belongs to rank 3.  No one in rank 2 would think of investment in
these terms.  The idea that postponement of gratification de-
serves a reward is yet more advanced, higher in rank 3 or on
toward rank 4.

     Up through rank 3, uncertainty is managed by intuitive judg-
ment and charisma.  The intuitive planner may well take into
account the known facts, but decides on the basis of unconscious
knowledge (lore, again).  As we struggle toward rank 4, theories
of decision-making under uncertainty appear; explicit algorithms
for making decisions are offered.  The better ones have a place
where the  decision-maker can enter intuitive estimates of
uncertain parameters.

     Charisma is when a person can make others eager to follow.
Hitler had it; he overwhelmed the Germans with assurances that
they would rule the world and be safe.  The Germans in the 1930s
did not have the character structure to reject his assurances. He
was wrong, of course, but so are many charismatic leaders. John
F. Kennedy was charismatic also, with a different population and
different goals.  Rank 3 character structure does not require a
leader who can absorb uncertainty, does not respond to charisma.

     So:

     1.   Technological advance sometimes offers opportunities to 
          invest so as to limit the consequences of uncertainty. 
          (Irrigation systems save the crop when rain doesn't
          fall.)

     2.   Investment postpones reward, making reward less cer-
          tain.

     3.   As character changes with rank, more of the people
          participate in investment decisions.


6.2.2. Obsolescence

     Peasants* believe in their land:  It has supplied their
ancestors since time immemorial, and will supply their descen-
dants forever.  It is a sacred trust.  They have no concept of
obsolescence.  (This is not a parody, just an oversimplification.
There have never been peasants in the USA, and perhaps not in
England.)

     The productive plant in Europe before the Industrial Revolu-
tion was "fragile"; most of it, including moving parts, was made
of wood.  Repairs and replacement were a larger share of costs
than they were later.

     "... the industrial revolution was above all a trans-
     formation of fixed capital: from now on, it would be
     more costly but more durable: its quality would be
     improved and it would radically alter rates of produc-
     tivity."  (Braudel FBCC* p. 2:247)

Investment in plant therefore became more attractive.

     Even a water-powered mill in rank 2 did not become obsolete.
The issue of obsolescence arises with the invention of invention.
Once technological change speeds up, a machine may have to be
discarded before it is worn out because there is more profit in
replacement than in continuation.  Either the machine or the
product that it makes is obsolete.

     Why not give old computers to countries that have little
foreign exchange to spend?  Because maintenance of the old
machines will cost more foreign exchange than purchase of new
machines that can do the same computations.

     Since you live in a time of rapid change, you may have more
trouble understanding what life is like in an era when the same
machine can operate for generation after generation, without any
opportunity for improvement.  On the other hand, if you have
strong feelings about pollution, you may dislike the idea of
obsolescence because it seems wasteful.

     The issue of obsolescence and waste, it seems to me, comes
down to putting appropriate values on benefits and costs.  We may
overstate benefits and conceal costs, and thus erroneously decide
to discard something.  Given clear-headed estimates of benefits
and completely honest recognition of all costs, we will still
often have to recognize obsolescence, because obsolescence is the
other side of invention.


6.3. NET WORTH:  PERSONAL AND PLANETARY

     6.3.1.  Net Worth of the Planet
     6.3.2.  Personal Net Worth


     Net worth depends on what exists, what use can be made of
     it, and when that use will occur (since future use is
     discounted).  Technology creates new possibilities of use,
     but it also consumes or degrades resources.  Taking into
     account all kinds of effects on Earth as a whole, we find
     that very few sapients have had a favorable net value.


     I don't count myself a materialist, and no one considers me
an economist.  Nevertheless, sometimes we have to look at the
economic significance of what we are doing, in crass material
terms.

     My understanding of value is that it originates and resides
in human beings.  Without us, the universe would value nothing.
Only my own welfare, and the welfare of other persons presently
alive or yet to be born, rises to highest significance for me.
Therefore I am only secondarily an environmentalist, and the
welfare of other species rates less for me than our welfare.

     Nevertheless, the environment is where we live, and we must
take care of it or die.  Whether we do so badly as to die our-
selves or only so badly as to doom our descendants isn't very
interesting.

     The environment does not respond to our spiritual merit.  It
does respond to our material actions.  Loving a tree has no ef-
fect.  Watering a tree does.  Hence the following crass material
analysis of the net worth of human beings.


6.3.1. Net Worth of the Planet

     Imagine setting a value on each ounce of iron wherever it is
today.  The figures can be in dollars, and the value accords with
the contribution that particular ounce of iron can make to human
welfare, less the cost of making it usable. discounted to present
value.  Some iron is in veins of ore; to use it we must mine it,
refine it, and bring it to a factory.  The value of an ounce of
iron in a vein of ore is the value it would have in the factory,
less the cost of making it ready to use.  Much of this ore will
not be used for a long time to come, so its present value is
heavily discounted.  Some iron is already at factories; we only
have to move it from the stock area to the assembly line.  The
iron waiting behind the factory will be used soon; its value need
be discounted only a little.  Some iron is in products that
people are using right now.  And some iron is rusting in waste
dumps; it can be dug out and refined again, perhaps at a higher
cost than applies for iron ore.  We can end up, then, with a
dollar figure for the total value of iron today.

     Now imagine listing all of the earth's resources, and
setting a value on each of them as we did for iron.  In the end,
we have a dollar value for the planet as it stands.

     Over the millenia, how has the net worth of the planet
changed?  Several points:

     1.   Rankshift raises planetary net worth.  Iron ore had
          zero value in rank 1; it was not being used, and if the
          world had remained forever in rank 1 the iron ore would
          never have contributed to human welfare at all.

     2.   Formation of capital increases planetary net worth. 
          The value of a factory lies in its capacity to convert
          less valuable raw materials into more valuable finished
          goods.  To set a value on the factory, see how much
          value it will add over its working life, and discount
          to present value.

     3.   Consumption diminishes planetary net worth, converting 
          good iron into scrap and good food into waste.

     4.   Population growth increases planetary net worth, be-
          cause  a larger population will use resources sooner.
          The discounts will apply for shorter periods.

And that is a clinker:  The world is more valuable if we are
using it up rapidly, yet once used up there will remain no world
for our descendants to live in and on.

     Well, who said that our goal was to maximize planetary net
worth?  We're just making calculations so far.  Let us define a
plausible economic goal for mankind:  To raise the net worth of
the planet subject to the restriction that our forecast of net
worth is nondecreasing over a future of, say, 10,000 years.  If
we raise net worth by shortening time-to-consumption, then we
must forecast a precipitous decline in some proximal future.  If
we raise net worth by capital formation, maybe we can find ways
of investing that will change the long-term forecast.


6.3.2. Personal Net Worth

     How shall we estimate the crass material net worth of a new-
born infant from a long-term global perspective?  Assume that the
child is born, and calculate the net worth of the planet on the
day he or she dies. Assume that the child is not born, and cal-
culate the planet's value on the same date.  The difference is
the child's material value, positive or negative.

     Up to now, it seems to me, the result is negative in most
cases.  What the typical person contributes to the net worth of
the planet is less than what the person consumes in a lifetime.
Some philosophers and inventors may individually have given more
than they took, but those must be rare exceptions.

     At first  glance, I have made a case for population
reduction.  But there is at least one alternative:  Change the
circumstances of material life on earth until new-borns have
positive net worth.  We would have to consider a wide range of
alterations in our ways of life:  Simplicity, efficiency, changes
in production processes and choice of raw materials, and so on.
Then we might or might not find a solution; and if we found a
solution, we might or might not believe that human beings would
enjoy life in the circumstances that solved the problem.

     My hunch is that the world cannot remain forever (10,000
years) a good environment for a population over two or three
billion persons.  That is, I doubt that a solution exists that
combines pleasant circumstances and non-negative net worth for
new-borns if the world population is more than half what it is
today.

     There are other proposals:  Make people smaller (Vonnegut).
Shorten their lives by euthanasia, since few contribute much in
old age, and they consume more, e.g. of medical services (science
fiction).  Export them to other planets or to artificial islands
in space.  Make artificial intelligence real and put peoples'
brains into computers (Minsky).  I don't much believe in any of
these--in fact, hardly at all.  The only hope I see is in
sticking to the hard, uphill path.


6.4. NET WORTH, ENVIRONMENT, AND THE EVOLUTION OF TECHNOLOGY


     The most favorable effect that technological change could
     have on the Earth as a whole is the contribution it can make
     to raising the rank of thought--both cognition and charac-
     ter--of Earth's sapients, so that they can make personal
     decisions in ways that promote long-term stability.


     Imposing small family size on people who value nothing in
life so much as a large family is not my idea of respect for
human freedom and dignity.  Imposing the kind of life that we
here and now associate with poverty on all of mankind does not
suit me any better.  Burning up the world's resources and leaving
our children or our children's children destitute displeases me
also.  And I do not believe that technology solves psychological
and social problems.

     Nevertheless, I believe that the evolution of technology has
always occurred in close interaction with social and psychologi-
cal change:

     Cognitive change, giving each rank more powerful ways of
     thinking.

     Character change, giving each rank better control of anxiety
     and greater capacity to participate in healthy social life.

     Social change, giving each rank a broader definition of
     "human like me"--workers are like capitalists, serfs are
     like landowners, foreigners are like us.  And also, at each
     rank, a larger proportion of the population living at the
     highest rank in the culture.

And so I look to technological change as one factor in the
solution.

     Consider a country in which few are educated, capital is
still mostly in land, the standard of living is low, and the
birth rate is high.  If that country can change in all respects
at once, it will cease to have a population problem.  Change in
some respects but not in others simply does not work.  But is the
world doing enough to foster technological, political,
social, educational, and other changes in such countries?
Change must come fast, since population growth is rapid
and population reduction is hard to achieve.

     Technological change that reduces the real total cost
to the planet of the good life; that motivates children to
go to school; that makes education more widely accessible;
that supports mutual understanding--this is the kind of
technological change that I think the world needs.

     If we are, as I think, in transition between rank 3 and
rank 4, then many of our problems may be problems of transi-
tion.  Unfortunately, I can't foresee when or how the
transition will come to a successful end.