From Cambridge to Eternity: “Robinson Crusoe’s Currency”
Suppose Robinson Crusoe’s life on the Island. As usual, he on arrival comes across good news and bad news. The bad news is that he finds himself empty-handed: he owns no physical capital. The good news is that he is all by himself and that he owns bountiful human and natural capital. Ironical but true, he is enormously wealthy but extremely poor: the former is a matter of assets (T 0 ), while the later productivity (T -1 ). A lesson: Consumption is not a function of wealth, contrary to the general practice in macroeconomics. To be mathematically correct, before consumption we have to differentiate the wealth variable with the time variable. After all, production to consumption (T -1 ) is to Economics what wealth is to Finance (T 0 ). Don't mix 'em. L...