The Review of Economics and Statistics Vol. 50 No. 4 1968
A New View of Real Investment in Structures, 1919-1966
Abstract
N ONE of the procedures used in the measurement of investment has generated more controversy than the deflation of construction expenditures, for the measured rate of growth of real investment in structures in the United States varies over a wide range depending on which price index is chosen. Deflators proposed for United States construction range from the official Department of Commerce Cost (CCC) used in the United States National Accounts, which implies that real investment in nonresidential structures grew by 228 per cent from 1919 to 1966, to the Bureau of Public Roads (BPR) Composite Highway Index suggested in [7], which implies a much higher 19191966 increase of 47& per cent. Far from achieving a reconciliation between these two alternatives, conflicting conclusions were reached in the most recent detailed studies of the subject. Dacy [2] [3] has proposed a method which yields a 1947-1963 price increase much closer to that of the BPR highway series than that of the CCC index, while Kendrick, R. A. Gordon, and other have cited evidence supporting the much faster long-run upward trend of the CCC.1 A resolution of this conflict would allow us to evaluate and improve United States capital stock data, which have recently been criticized for ignoring an alleged bias in the construction price deflators.2 Can the apparent decline in the United States capital-output ratio between the 1920's and 1950's, for instance, be partly explained by defects in the official construction price indexes? In addition, improved information on construction prices would yield new output and productivity indexes suitable for testing the commonplace proposition that construction is a primitive industry in which efficiency improvements are almost as rare as in barbershops and the United States Post Office.3 This paper examines primary source data on the subject and proposes a new construction price index for the period 1919-1966. The new index is based partly on actual buyers' prices paid for several structural components and partly on an improved version of Dacy's indirect method using aggregative data for the entire contract construction industry. To anticipate the conclusion of the paper, the new index exhibits a long-run trend which is, appropriately enough, halfway between those of the CCC and BPR indexes and suggests that the official data overstate investment in structures in the mid-1920's by more than 35 per cent. The paper also suggests that productivity advances in construction have been surprisingly rapid in the postwar years, in contrast to an apparent stagnation of efficiency in the prewar period.
- DOI
- 10.2307/1926807
- Volume
- 50
- Issue
- 4
- Pages
- 417
- Sources
- openalex crossref