All this has assumed has assumed constant cash flow indefinitely. That would imply zero growth. Only under zero growth do output and rate of return simplify to cash
flow and cash flow rate.
Now let’s model growth in. | divide the Y rule by total capital, as in Chapter 4, to get
output __ total capital growth + cash flow total capital total capital total capital ’
or more compactly
rate of return = growth rate + cash flow rate. (7.8)
At the collective scale, cash flow rate simplifies to pure consumption rate. That
would be written
rate of return = growth rate + pure consumption rate, (7.9)
as in Chapter 4. Then (7.6) through (7.9) allow
rate of return = growth rate + 3.5%/year (7.10)
at the collective scale.
(7.10) would be wrong if growth rate were a function of cash flow rate. | said that politicians, and even economists to a degree, teach that faster growth needs
consumption restraint first. That corresponds to cash flow restraint in (7.10). Free
Chapter 7 Petty’s Idea 2/3/16 20
HOUSE_OVERSIGHT_011079