126 MULTIPLE PURPOSE RIVER DEVELOPMENT 



rate would cease to be a proper indicator of social value. A lower 

 interest rate might lead to a larger number of projects, would 

 favor projects which are particularly long-lived, and would 

 lead to the fuller development of the potential of many project 

 opportunities. 



The decision not to abide by the market judgment need not be 

 based entirely on ethical considerations. As we have seen earlier, 

 the capital market is imperfect because of the riskiness of invest- 

 ment and for various institutional reasons. Also, because of 

 imperfect perception of future circumstances and the uncertainties 

 surrounding individual lives, it is less likely that consumers make 

 their saving-borrowing decisions as rationally as their choices 

 among commodities. Consequently, the actual intertemporal 

 choices in our economy, including the determination of the over-all 

 level of saving and investment, are made in a rather haphazard 

 manner.*^ 



These arguments provide a point of contact between economic 

 analysis and conservationist philosophy. Most of the policies advo- 

 cated in the name of conservation are designed to make stronger 

 provision for the future than the market mechanism would call for. 

 Resource development is a particularly potent area for the kind of 

 investment designed to benefit future generations. There are 

 opportunities for development of extremely enduring, in some 

 cases perpetual, additions to the nation's capital stock, which will 

 increase in value as population and the economy grow. It may well 

 be that the desire to redistribute income toward future generations 

 can provide some rationale for continued use of a low interest rate. 



But this line of argument has limitations. Insofar as a low 

 interest rate leads to the justification of some projects at the 

 expense of others which can produce a better return, the rate will 

 result in a social loss even within water resource fields. Also, if the 

 fundamental objective is the redistribution of income toward the 

 future, the critical variable is not so much the interest rate as the 

 over-all level of investment.^^ The best policy to meet this objec- 



■" It is not clear whether the actual level of saving is higher or lower than 

 the ideal (defined in terms of the judgment of the present generation). On the 

 one hand, the large gap between borrowing and lending rates indicates that 

 the level is too low; on the other, the saving carried on by corporations may 

 far exceed the level desired by their stockholders. 



^ For a fuller discussion of this point, see Otto Eckstein, "Investment Criteria 



