High Maintenance

This is another installment in a series of posts which discusses the calculation of inventory for the cash-inventory equivalency. Today, I will revisit labor as inventory.

For items not bought but rented by the month, I concluded that the rental unit, whenever it changes occupants, should factor into the inventory at the full price it takes to buy it. Since labor can be viewed as renting an employee on a monthly basis, I figured it should similarly be factored in to inventory at the price it would take to buy the employee. Rents would be to house prices what wages are to the "ghost slave." From principle and interest rates you can calculate the monthly payment. With "reverse rents," you calculate the principle from the monthly payment, and that is the price that would be included in the inventory for those items available for rent.

Back when I first defined reverse rents and ghost slaves, out of convenience, I disregarded the maintenance cost of the unit. This post will now factor that in, and will show that by doing so, rents and labor behave quite a bit differently.

For a house to be a profitable investment, the rent it generates has to exceed the mortgage and the maintenance costs. This includes repairs, taxes, insurance, and any landscaping, etc. Maintenance costs on a house are generally small relative to the rental income. But still, the reverse rent on a monthly payment would overstate the price of the unit as an investment. More correctly, one should do the reverse rent on the monthly payment minus average maintenance costs.

Now let us consider the maintenance costs for humans. Left to our own devices, people pretty much spend all the money they get, as confirmed by very low savings rates over the last decade. If you include income taxes in the maintenance costs, the net profit generated by most humans is close to zero.

So as an investment, people being the money sieves we are would be mostly worthless unless they generate savings (or equity or capital gains). If they do, then their theoretical investment value would be function of the savings they generate. Since owning a person has not been an option since the Civil War, for all practical intents and purposes, labor can be excluded from the inventory.

So, fortunately, I do not have to go into the nuts and bolts of owning a ghost slave. Later, when discussing the role that bonds, gambling, and insurance premiums have on inventory, I'll give another reason why labor can be disregarded from inventory.

Coming up with the idea of ghosts slaves and then negating their value in light of high maintenance costs is a roundabout way of saying that work is not a tangible good so should not be included in the inventory.