Abstract Economic Model of Human Capital Compared to Firm Accounting

My purpose in this analysis of the firm has been to derive equations valid for any capital of either factor. The firm is a good model for several reasons. Its accounting traditions are centuries old, and have been well thought through. It is rich in possibilities because it has to be. It must describe firms of many kinds. It must allow for contingencies whether or not they apply. For many simple assets, say the firm’s shares as opposed to itself, revenue and positive cash flow can be the same. But the complexity and versatility of the firm itself, and the person-likeness added by its internal management, make it a useful model for any and all capital of either factor. Not that I claim to follow accounting tradition closely, or even to understand it closely. | am even less an accountant than an economist. My terms and concepts tend to be idiosyncratic. The main thing is for the logic to hold together. Human Capital by Analogy to the Firm It is reasonable to define pay as the revenue of human capital. Earned revenue for the firm is typically less than revenue. There are prior claims to offset contribution by worker and suppliers. The counterpart in human capital, I said in Chapter 2, is maintenance consumption. | believed for years that this cost counted as a prior claim on pay, just as with the firm. ] may have been the only person to think so since Quesnay and the physiocrats, although Mill and Sraffa might be interpreted that way. But who has thought what doesn’t matter. Quesnay’s idea is a mathematical possibility that must be addressed. I’ll get there soon. Human capital is inalienable. That means that its decapitalization simplifies to human depreciation. The firm’s added possibilities of depletion and liquidation don’t apply. The output of human capital is called work. Then (6.1) through (6.8), applied to human capital, give earned revenue = pay - prior claims = gross realized work = realized work + recovered human depreciation. (6.15) Chapter 6: Parallels with the Firm 2/4/16 9 HOUSE_OVERSIGHT_011043