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Output: Creation of wealth, or equivalently of capital of either factor. Physical capital: Capital whose outside operating cost does not satisfy tastes. Present value rule: Capital of either value is expected cash flow discounted at our time preference rate. Profit: Output of physical capital. Pure consumption: Same as exhaust. Rate: Quantity measured as a flow over a stock, and equivalently as a pure number over time. Stock: Quantity measured in dollars alone. Same as capital. Tastes: Intentions whose satisfaction terminates capital in exhaust. Total return rule (or total return truism): Output equals capital growth plus cash flow. Transfer in: Value inserted from outside. Same as new investment from outside. Transfer out: Value passed out and recovered fully in other assets rather than exhausted. Wage: Same as pay. Work: Output of human capital. Summary When I first thought these foundations through, maybe 25 years ago, I was just as happy to see that they held so little originality. The vocabulary is about the same as in Adam Smith, and the three fundamental theorems are well accepted. Any composer knows that originality should be incidental. Our music says what we think Chapter 3: Foundations 1/11/16 19 HOUSE_OVERSIGHT_010990