CHAPTER 6: PARALLELS WITH THE FIRM
My Own History with These Ideas
For sheer shock value, at least to economists, the pay rule and the Y rule must count first amount the surprises I promised. Who would have thought that human depreciation is expected to be recovered in revenue (pay) and product value just as with plant depreciation? Heresy! Yet nothing is more easily proved. Either the
maximand rule or the deadweight loss rule is enough.
Free growth theory and next generation theory give more scope and policy implications. But the pay and Y rules have plenty of those, and may be new to the
world. Mill and Petty beat me to the others.
| have been arguing the pay and Yrules from the time | reversed course from Quesnay’s idea some five years ago. I will rederive both in new ways at the end of this chapter. My change of mind was a classical epiphany. I had been resisting the obvious for years. I showed how my parable of the boss and her secretary got me on
track.
My depreciation theory is a lesser shock. It occurred to me over the Christmas holidays this year. It contradicts the national accounts, whose Capital Consumption Adjustment corrects book depreciation from linear to exponentially falling. That would make depreciation fastest at the start, and progressively less. No one has objected because practical experience seems to say the same. If we resell a new car or house after only a few months of use, we take a big hit. If we resell a new factory, which would have been tailored to our unique business plan, we take a bigger one. My counter-argument is that premature resale reflects adverse selection. The usual motive for premature trade is bad news and pressure to sell, not pressure from
others to buy.
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