The difficulty of measuring capital, revisited: Does science offer an alternative?

This article examines the difficulty that economists have had in measuring capital in physically meaningful units, and what might be gained in our understanding of technological change if such physically meaningful 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 partitioned into categories, within which unique physical units of measure could be applied. The physical units identified are: (1) energy consumption capacity of manufacturing equipment; (2) the speed of calculations in information processing; (3) the floor space and volume of structures; (4) acres of utilized land; and (5) all other raw materials, weighted 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 such hedonic studies unfolds, one observes consistent patterns in the role played by these natural units, e.g., consistent, rapid increase in the speed of computer calculations. It is argued that technological change in capital equipment is well reflected and understood in terms of these natural units. In contrast current methods of partitioning capital into existing categories, like those used in U.S. national accounts, may serve other purposes very well, but reveal little about the causality of technological change.