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Consider net gift. Its negative component, gift received, is concurrently added either into total capital growth or into exhaust. Thus it is the contribution to those two desiderata explained from outside, rather than by the individual’s behavior. Net gift deducts that negative component (gift received) from the positive one to leave the part which the individual’s behavior explains. Thus individual output, as the sum of growth and net gift, is the sum of desiderata realized by behavior. That makes it the unique behavioral maximand as a flow. Division by the individual’s total capital, which is her whole means of behavior, gives total capital rate of return as the rate maximand. This can be summarized in a slightly different way. Cash flow measures the means of taste satisfaction now. Total capital growth measures gain in means of expected satisfactions, discounted according to our taste for impatience (time preference) tempered by our taste for risk aversion. Output is their sum. Behavior reveals and maximizes the taste satisfaction including provision for future satisfaction. Therefore risk-adjusted output is the flow maximand. Capital of both factors, at present value, is defined as the whole means of that satisfaction, and implicitly of behavior. Therefore risk-adjusted return, the ratio of the flow maximand to its means, is the rate maximand. What Turgot said in 1766, in his Reflections, was “...as soon as the profits of one employment of money... increase or diminish, capitals turn in that direction... or withdraw and turn to other employments... Whatever the manner in which money is employed, its product cannot increase or diminish without all the other employments experiencing a proportionate increase or diminution.” Turgot did not allow for risk in this quick summary, but otherwise explained the mechanics that tend to equalize return. Chapter 3: Foundations 1/11/16 13 HOUSE_OVERSIGHT_010984
February 6, 2026 at 9:45 PM