Productive Capacity of Capital Stock: Problems of Measurement

Poduzov, A.A. (1983). Productive Capacity of Capital Stock: Problems of Measurement. IIASA Collaborative Paper. IIASA, Laxenburg, Austria: CP-83-047

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Abstract

When studying the "economic growth" of a country, one must be careful to identify it with processes that occur in real economic life. It is neither adequate nor correct to define it merely in terms of the growth of a particular statistical indicator such as real GNP or national income. But when dealing with real growing economies, one actually has only two possible courses of action, namely, to study either the growth of aggregate value -- however it is defined -- or the growth of the aggregate use value. The latter option means studying the growth of the aggregate utility of all goods and services produced during the period concerned. I believe that aggregate value has little or nothing to do with any useful definition of economic growth, whereas aggregate use value is precisely what should be kept in mind in any such studies.

Having adopted this definition of economic growth, however, the problem of measurement immediately arises. To measure the growth of aggregate utility adequately, it is necessary to measure both the growth in the quantity of goods and services produced and the improvements in their quality. My feeling is that the present state of the art in measuring the quality component of economic growth is such that almost nothing definite can be said about the actual rate of economic growth of a given country. Except one thing: it must be higher than the rate of growth of real GNP.

Therefore, this paper does not set out to examine the measurement of economic growth per se. Rather, it is concerned with the measurement of one of the factors of economic growth, namely, capital input, which is at least more or less observable. Several estimates of the rate of growth of the productive capacity of capital stock have already been published, mainly by US economists such as Robert Gordon of Northwestern University, Dale Jorgenson of Harvard, and others.

One very noticeable feature of the available estimates is that they reflect different facets of economic reality, and do not directly correspond to one another. Therefore, the first purpose of this paper is to arrange and systematize them somewhat. The second purpose is to provide a rough estimate of the growth rate of the productive capacity of capital stock for the US economy: this is chosen purely as an illustrative example.

It is clear that the problem itself is of a general, universal nature. The need to assess the contribution of increased capital stock productivity to national economic growth exists in all countries, even though perceptions of its relative importance may differ from one country to another.

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