(A1.1), (A1.6), (A1.7) and (A1.8) are alternative statements of the total return
truism.
In general, define g(Q)=Q/Q for any variable Q. Note again that g in this book
means growth rate of capital g(K,) rather than output. g in macro tradition usually means growth of output g(Y). Total capital K,. is the sum of human capital H and
physical capital K. Their outputs respectively are work W and (net) profit P. Their counterparts to (A1.1) and (A1.6a) are
W=H+F(H), r(H)=g(H)+f(H), P=K+F(K) and r{K)=g(K)+f(K), (A1.8)
where F(H), f(H), F(K) and f(K) are respectively “human cash flow”, “human cash
yw tt
flow rate”, “physical cash flow” and “physical cash flow rate”.
Present Value and Present Cost
If there were no such thing as time preference, present and future value would be the same. All economists known to me concede that we prefer present goods to future ones, although some like Joseph Schumpter have seen no good reason why. |
suggest a reason in next generation theory.
Present value theory, understood in essence by the Sumerians, considers what we
now call future positive cash flows which are expected to be generated from
external investments (transfer in, negative cash flow) made now or earlier. At the
differential (infinitesimal) scale, we can write the associated future value as dFV(z)=F (z)dz (2.1)
at future moment z. The basic idea of present value PV is
APPENDIX A: The Argument in Notation 3/7/16 4
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