per unit time. But Petty showed that the idea of human capital as discounted cash flow measured in a money sum allows the factors to be summed together. The revival of interest at the Chicago school soon introduced the term physical capital for land and man-made things that can be bought and sold, and total capital for the sum. Physical capital is a misnomer in that we are physical too. But I have used it throughout so that economists can follow me and general readers can pick up some
of their language.
From the Y = C +1 Equation to the Y Rule
Chapter 2 summarized my argument adjusting the Y = C + ] equation to the Y rule. Chapter 4 spelled out the former in (4.1). The Y rule made the hidden asterisks of the Y=C +1 equation explicit. | said in both chapters that the free growth equations
are the same for both when we allow for the asterisks.
Let’s go through the derivation of the Y rule again. (4.1) shows
output = investment + consumption.
I] generally mean the version of this where “ex post net” is understood before both “output” and “investment”. | said that this idea is implicit in the Mill quote, and is probably as old as economics. Net output, here or anywhere, means creation of value. Then the equation would be guaranteed by the truism, at the collective scale, if net investment meant growth of all value existing, meaning total capital, while consumption meant elimination from total capital collectively and nothing else. But net ex post investment as meant throughout this book, and anywhere in macro, means growth in physical capital alone. Consumption includes Schultz’ invested consumption transferred into human capital as well as his pure consumption
eliminated from total capital as a whole. What the truism guarantees is rather
output = total growth + pure consumption, (5.1)
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