ROBERT J. GORDON'S CONCEPT OF CAPITAL

Edward F. Denison

Review of Income and Wealth, 1993, vol. 39, issue 1, 89-102

Abstract: Estimates of capital stock normally equate different models of capital goods by their production costs at a base date (a concept known as method 1 or K), not by their current marginal products (method 3, or J). Some economists advocate that, instead, different models be equated by the base‐date costs of providing characteristics of the goods, not of the goods themselves. The characteristics selected have, however, excluded the amounts of other inputs used in the production to which the good is devoted. Hence the method does not equate capital goods by their marginal products but instead by the gross products of the capital goods together with various amounts of associated inputs. Gordon recognizes this defect and believes he has remedied it empirically, but the steps he takes are too slight to support this view. It remains impractical to construct estimates that equate goods by their marginal products.

Date: 1993
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