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counterparts in the next generation. Each cohort (same-age group) invests effectively in its immediate descendent. Eight-year-olds are investing in the next generation of eight-year-olds, and so to the end. That’s why Fisher’s version of the generation length is best. It prioritizes each cohort and gender without judgment as to which matter more. The period of production gives our patience horizon. The horizon and its reciprocal, the pure consumption rate, both hold the same at any age. Cash Flow and Risk The maximand rule notes that time preference and return vary with risk. Return is growth rate plus cash flow rate. Is variance with risk captured more in one of these two components than the other? We might intuit that riskier and higher-return assets grow faster on average, over enough time for the bumps of risk to even out. But if that tended to be true, the universe of assets would grow progressively riskier over the decades and centuries. That is not my reading of history. My impression is that smoother and rockier periods come and go without overall trend. In the world we know, then, it is cash flow rate rather than growth rate that varies from asset to asset with risk. For illustration, consider factor risk. | argued that human capital figures to be the riskier and higher return factor because assets tend to reflect the risk appetites of their owners. The young are more risk-tolerant, and own human capital disproportionately. If this higher return were reflected in higher growth, rather than in higher cash flow, the ratio of human to physical capital would tend to rise steadily over the millennia. Most readings have tended to see it the other way around. I myself favor the neutral assumption that the factors keep pace. Then cash flow rate becomes higher for human than physical capital, with 3.5% the cap-weighted average. Chapter 7 Petty’s Idea 2/3/16 22 HOUSE_OVERSIGHT_011081