Fixed Capital and the Surrogate Production Function
In much macro statistical and econometric work — most notably in the estimation of ‘aggregate production functions’ — the ‘amount of capital’ is represented by a single magnitude, the aggregate value of the vast set of heterogeneous objects which constitute the capital stock. The implicit claim is thus that the value of capital is the measure of capital which adequately represents capital’s various economically relevant properties. In a well-known paper Samuelson (1962) sought to show that certain properties of some economic systems, involving heterogeneous capital goods, could indeed be approximated, to any desired degree of approximation, by the properties of a ‘surrogate production function’, in which the amount of capital is represented by its value.
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