Output:
Physical capital:
Present value rule:
Profit: Pure consumption:
Rate:
Stock:
Tastes:
Total return rule (or total
return truism):
Transfer in:
Transfer out:
Wage:
Work:
Summary
Creation of wealth, or equivalently of capital of either factor.
Capital whose outside operating cost does not satisfy tastes.
Capital of either value is expected cash flow discounted at our time preference rate.
Output of physical capital. Same as exhaust.
Quantity measured as a flow over a stock, and equivalently as a pure number over time.
Quantity measured in dollars alone. Same as capital. Intentions whose satisfaction terminates capital in exhaust.
Output equals capital growth plus cash flow.
Value inserted from outside. Same as new investment from outside.
Value passed out and recovered fully in other assets rather than exhausted.
Same as pay.
Output of human capital.
When I first thought these foundations through, maybe 25 years ago, I was just as
happy to see that they held so little originality. The vocabulary is about the same as
in Adam Smith, and the three fundamental theorems are well accepted. Any
composer knows that originality should be incidental. Our music says what we think
Chapter 3: Foundations
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