The Problem of Capital Intensity

Steindl, Josef

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Document type:: Works

Collection:: Josef Steindl Collection

Title:: The Problem of Capital Intensity

Author:: Steindl, Josef

Scope:: Typoskript, 10 Seiten mit handschriftlichen Anmerkungen und Anstreichungen

Year of publication:: 1988

Source material date:: [vermutlich um 1988]

Language:: German English

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] E23 [Macroeconomics: Production]

Shelfmark:: S/M.58.1

DOI:: https://doi.org/10.48671/nls.js.AC14446161

TTTIV. THE PROBLEM OF CAPITAL INTENSITY Chapter III of Small and Big Business.Economic Problems of the Size of Firms.Oxford 1945. Entirely re-written 1988.. 1. In a comparison of small and big firms the question also arises whether they differ as far as their capital-output ratio is concerned. Apart from the "morphological" question of the characteristics of firms of different size there exists also the different but somehow related question how a growing firm will change and, in the present context, how it will use its accumulating capital: To what extent it will use it to produce the same output with more capital and to what extent for just expanding capacity. This second aspect of the problem leads us to consider the capital-output ratio in a much more general context, including the question of its historical change. ivvv&a<c ( l !? u&n 1 VVv We are not oversupplied with data on capacity or capital. I tried to use the U.S. Statistics of Income for corporations which give capital assets and sales ( Table 1 ).There seems to be a strong increase in capital-sales ratios in various industries in the highest size classes, and more generally in all industries in the lowest size classes.The crux of these data is the vertical integration of the big concerns. In fact it is only too easy to see that the strong increase in the capital-sales ratio in the highest size classes of corporations occurs in the pulp and paper industry where the large concerns own forests, in the iron and metal industries where they own mines, and in the chemical and allied products industries where they own oil wells etc and means of transport like tankers. In the other industry groups the increase in the highest size classes is either absent or small. On the other hand there is a very general increase in the capital- sales ratio in the lowest size classes. This can be explained very easily by the fairly general consideration that small firms lack funds and therefore prefer hiring or leasing to ownership wherever it is feasible. Thus with increasing size, from the smallest size class to the medium ones hiring and leasing is replaced by ownership of buildings, shops,plant, premises,means of transport e t c . This has practically the same effect as a decrease in proportionate indebtedness. In fact, hiring or leasing means borrowing capital in natura instead of incurring debt in order to buy the equipment in question. . In the form of a rent the small firm pays the equivalent of interest and annuity on borrowed money and in so far as the equipment in question is necessary to the running of the enterprise the firms profits are precharged in the same way as they are when they have borrowed money. The practice of avoiding ownership has therefore nothing to do with the capital-output ratio which is a matter of technology but is rather pertinent to the topic of the following essay on the financial structure of firms. As far as production technique as such is concerned statistics of the above type can give us little help and we have to turn to other sources such as engineering data to get at least a tentative answer. The evidence,in fact,tends to show that the capital-output ratio often decreases with increasing size of the production

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