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The Interrelation between Capital and Output in the American Economy

In: Economic Progress

Author

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  • Evsey D. Domar

    (Johns Hopkins University)

Abstract

That capital is a necessary factor of production must have been known to men, beavers and bees from time immemorial, but serious and fruitful attempts to find a quantitative relationship between capital and output and to incorporate it into the body of economic theory have, with a few exceptions, been remarkably recent.1 Part of this delay may be conveniently attributed to a lack of statistical data. Yet sources which could have yielded reasonable estimates of capital for the country as a whole and by industries had existed for quite some time,2 and might have been utilised earlier if demand for information of this kind had been present. The principal blame for the neglect of this subject should be attributed, I believe, to traditional economic theory. With the exception of the quantity of money, it has been very wary of stocks and has almost completely neglected the balance sheet as an economic document.3 But more important in this connection has been its general preoccupation with the static optimum combination of factors of production as determined by relative prices, and its exaggerated emphasis on the elasticity of substitution between factors and products. If capital and labour were easily and freely substitutable for each other, their respective relationships to output could hardly have much significance.

Suggested Citation

  • Evsey D. Domar, 1987. "The Interrelation between Capital and Output in the American Economy," International Economic Association Series, in: León H. Dupriez & Austin Robinson (ed.), Economic Progress, edition 0, chapter 11, pages 210-237, Palgrave Macmillan.
    • Handle: RePEc:pal:intecp:978-1-349-08440-1_11
    DOI: 10.1007/978-1-349-08440-1_11
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