Introduction

Steindl, Josef

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Document type:: Works

Collection:: Josef Steindl Collection

Title:: Introduction: A revised introduction to "Small and Big Business"

Author:: Steindl, Josef

Scope:: Typoskript, 20 Blätter

Year of publication:: 1972

Source material date:: [04.1972]

Language:: English

Note:: Beim Typoskript handelt es sich um eine neu verfasste Einleitung zum Buch "Small and Big Business" (1945) vermutlich zwecks der italienischen, spanischen oder portugiesischen Ausgabe des Buches.

Topic:: Firm and market structure

JEL Classification:: D24 [Production, Cost, Capital, Capital, Total Factor, and Multifactor Productivity, Capacity] D43 [Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection] L11 [Production, Pricing, and Market Structure, Size Distribution of Firms]

Shelfmark:: S/M.3.7

DOI:: https://doi.org/10.48671/nls.js.AC14446127

9. Therefore, the main arguments of Chapter III retain their place in this book, although the conclusions drawn are not relevant. (This is particularly true of my unfortunate argument that the cost of the capital does not matter in less than full employment, which becomes redundant if there is no increase in capital-output ratio). Indeed, that the profit rate should decline in the highese size classes (taking it as a fact, although the evidence may not be wholly conclusive) could be explained by reasons more convincing than a supposed tendency for capital-output ratio to rise. The first of these reasons is the safety preference of the large concerns. Since they are less indebted than smaller firms their net profit rate on the average can be expected to be lower. The safety preference can also bring about similar effects in other ways. If the integration of sources of raw materials and power is motivated only by the wish to reduce risks, and yields less than the average profit rate of the firm, then we might interpret this as a case of "buying safety" which is fully analogous to the reduction in debt. Thus, the high apparent capital-output ratios of Table IX (see above) may indeed contribute to the explanation of falling profit rate (unless the raw material investment as happens often in backward countries, are very profitable), but the interpretation of this is quite differ ent from the argument of Chapter III. A second reason why the biggest concerns may have lower profit rate is that they may be less efficient and, especially, less innovative than others for reasons of internal organisation. The big concerns have often a monopoly (or oligopoly - ) position which may reduce their interest in technical progress. More important probably, they tend to be overconfident as a result of a successful past, and to become rigid due to traditions and routine which again is fostered by a history of success. I think this factor is more important than other more conventional diseconomies. In this book I played down diseconomies too much, and this was an error. In principle it must be recognized that the growth of the firm leads to serious inconvenience. The mere geographical size of the market increases, and with it cost of transport to the customer. The plant itself covers more space, therefore, there is more internal transport, much more important, with the increase in the number of people cooperating, the difficulties of communication between them increase disproportionately.^ This leads to increasingly H. A. Simon, Decision Making and Operational Design. J. G. March and H. A. Simon, The Dysfunction of Bureaucracy: Organization Theory, Ed. Pugh, Penguin Books 1971.

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