to reconcile with the common assertion of growing insufficiency of capital in the United States. If capital is becoming scarce, its relative price should be rising, not falling.
There is less evidence of a major secular decline if the lower rates of return of the 1950s are included in the analysis: the 1960s are atypically high. On the basis of these data one could argue that the reduction of corporate taxes in the early 1960s did lead to an expansion in capital investment relative to the growth of output, and thus a decline in the before-tax return as lower-yielding marginal projects were undertaken. And, in fact, the ratio of tangible assets to output rose substantially after the mid-1960s.
A possible explanation for the decline relates back to the earlier discussion of capital obsolescence. If a large proportion of the existing capital stock has been made obsolete by innovations following the sharp rise in energy and other prices during the 1970s, the true value of that capital stock would be less than is implied by a summation of past investment, and the fall in the measured return on existing capital would not imply a similar decline for the return on new capital.
The 1973 energy price change, however, is an insufficient explanation because capital purchased before 1973 constitutes only a small proportion of the value of today's capital stock: normal depreciation and retirement would have removed much of that capital by 1980. For example, if 25 percent of the stock of equipment became obsolete at the end of 1973, the error in the measurement of total assets, and thus the rate of return, would be less than 2 percent in 1980. One would expect to observe a gradual rise in the average rate of return late in the decade as the capital stock came to be dominated by post-1973 investments. That has not occurred. If the argument is made that the 1979 energy price increase initiated a second wave of obsolescence, one would have to believe that an extremely large proportion of the capital stock was made obsolete by energy price changes, including capital put in place after 1973.
This review of the knowledge about productivity growth and the causes of the post-1973 slowdown is in some respects very frustrating. From both an economic and social perspective economic growth has