The concept of "present value" is derived from the fact that any given sum of money has the capacity (if properly invested) to earn additional money over time. Indeed, it is this inherent earning power of money that gives rise to the requirement in most jurisdictions that "present value" adjustments must be made in every situation where damages representing future pecuniary losses are awarded. Part I of this lesson is designed to explain why certain types of damage awards must be adjusted to their "present value," and to demonstrate precisely how those adjustments are actually calculated. The lesson also examines a variety of individual factors that should be taken into consideration in performing various types of "present value" adjustments. This lesson is intended for those students who already have a good working knowledge of the concept of pecuniary damages, including the various individual components of such damages, as well as how they are measured.
Part II of this lesson addresses the related concept of adjusting future pecuniary damage awards to account for the potential effects of future economic inflation. This portion of the lesson examines in detail three specific methodologies for making such adjustments that were expressly articulated by the U.S. Supreme Court in its decision in Jones & Laughlin Steel Corp. v. Pfeifer, 462 U.S. 523, 76 L. Ed. 2d 768, 103 S. Ct. 2541 (1983).