Abstract Economic Theory on Human Depreciation and Pay Recovery

The pay rule argues that prior claims are zero and that all human depreciation is expected to be recovered in pay and work products as a norm. Chapter 2 offered two logical proofs of the second point. The alternative to recovery is deadweight loss. Capital is discounted foreseen cash flow, and cash flow is realization in transfer or taste satisfaction. Deadweight loss, or unrealized depcatialization, is therefore implicitly unforeseen. Human depreciation, like plant depreciation, is foreseen from the start. Aging and mortality come as no surprise. It is therefore foreseen as realized in pay. The second proof, stated in part by Becker, follows from the maximand rule. All behavior is maximization of perceived risk-adjusted return to the individual’s total capital. This follows from definitions, not from axioms. There are no exceptions because there are no square circles. The rule says that no one invests in anything without expected recovery with interest. Recovery means recovery of depreciation. We do invest in human capital, of ourselves and our children, and consequently expect recovery of human depreciation by ourselves or them. It’s that simple. Other proofs looked to evidence and experience. | offered the parable of the boss and her secretary, which had been decisive in converting me from Quesnay’s view. Let’s go through it once more. Assume that investment in each has ended before the last year for each. First take the possibility that neither maintenance consumption (the supposed prior claims) nor human depreciation is recovered in pay. Then work and cash flow for each have simplified to realized work and pay. Human capital of each is remaining pay less the time discount. At the beginning of the last year, it is something less than one year’s pay. If pay measured work, return to each (work/human capital) would be something over 100% per year. It would rise to 100% per day at the beginning of the last day, and 100% per second at the beginning of the last second. At the end of the last second it reaches infinity. Yet the portfolio assets of each reveal their rates of time-preference (return) as only a few percentage points per year. Chapter 6: Parallels with the Firm 2/4/16 10 HOUSE_OVERSIGHT_011044