THE DIFFICULTY OF MEASURING CAPITAL, REVISITED - DOES SCIENCE OFFER AN ALTERNATIVE

This article examines the difficulty that economists have had in measu ring capital in physically meaningful units, and what might be gained in our understanding of technological change if such physically meanin gful units could be found and utilized. The article acknowledges that no single unit of physical measurement could feasibly be used for all forms of physical capital, but proposes that physical capital be parti tioned into categories, within which unique physical units of measure could be applied. The physical units identified are: (1) energy consum ption capacity of manufacturing equipment; (2) the speed of calculatio ns in information processing; (3) the floor space and volume of struct ures; (4) acres of utilized land; and (5) all other raw materials, wei ghted by economic value. This choice of physically meaningful units is supported by the results of various hedonic price studies on capital equipment, which include studies of residential housing and commercial buildings, computers, and industrial equipment. As the history of suc h hedonic studies unfolds, one observes consistent patterns in the rol e played by these natural units, e.g., consistent, rapid increase in t he speed of computer calculations. It is argued that technological cha nge in capital equipment is well reflected and understood in terms of these natural units. In contrast current methods of partitioning capit al into existing categories, like those used in U.S. national accounts , may serve other purposes very well, but reveal little about the caus ality of technological change. (C) 1997 Elsevier Science Inc.