Cobb and Douglas: A Theory of Production

Cobb, C. W. and P. H. Douglas. (1928). A Theory of Production (Vol. 18, 139-165): JSTOR.

As society has gotten to a point where they can sufficiently measure labor and capital influences in an economy, it would be possible to examine how both of these interact to produce goods and services. Is it possible to determine the relative amounts of both labor and capital that are used in the production of goods?

First, it becomes important to outline the structure of the measurement of capital and land. We must remove land measurements from capital measurements because it does not directly aid in the production of manufactured goods or services. What should be measured is, “machinery, tools, and equipment and…factory buildings” (140).

Much energy and time is spent examining the current nature of fixed capital in the US in the late 19th century. Many questions arise as to the method for taking these measurements and the accuracy of those methods.

Methods for measuring the pool of labor engaged in manufacturing are then examined. It is clear that there are flaws with the approach used by Cobb and Douglas, and they are aware of the limitations. They also acknowledge that they do not take into consideration the “quality of laborers or…the intensity of their work” (149).

The authors then deploy their method to examine the relative impact of both labor and capital on production for a period in question. They find that three-fourths of what was produced can be attributed to labor, and the remainder to capital. Once again, this is relative to the time period (hence technologically relative) and also to the relative availability of labor and capital. However, “It is the purpose of this paper…not ot state results but to illustrate a method of attack” (156).

There is a point made at the end to show that this approach to understanding productivity is not firmly rooted in any ideology. “For while capital may be ‘productive,’ it does not follow that the capitalist always is” (164). Thus, one can be a communist or an individualist and still use this approach.