Capital input measures have occasionally been used by economists to measure productive capacity or potential output Y* (Berndt, 1990; page 153). Berndt explains that one well-known procedure gives the optimal capital-output ratio as gt = Kt/Yt* ; if gt is the optimal capital output ratio and constant over time, gt may be replaced by g. Then, given estimates of Kt and gt, potential or capacity output Yt* is computed as Yt* = Kt/gt. Next, actual output Yt is compared to capacity output Yt* to obtain a measure of capacity utilization, Yt/Yt*. In short, capital stock measures are often used to measure potential or capacity output, as well as capacity utilization.
Given a constant optimal capital-output ratio g = Kt/Yt*, capacity output Yt* can be expected to vary directly with the observed capital stock Kt. Similarly, given a constant optimal capital-output ratio g = Kt/Yt* and a constant resource stock, capacity output can again be expected to vary directly with the observed capital stock.
Berndt and Fuss (1989) point out that these two measures of utilization coincide only if there is but one fixed input (capital) and if production is characterized by constant returns to scale.
It is a short step in this linear, deterministic world to then equate capacity output with the observed capital stock and capacity utilization with capital utilization. When effort is used instead of capital stock, the concepts of available fishing effort and effort utilization are substituted for capital.
