The Problem of Capital Intensity

Steindl, Josef

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Works

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

represented only the consumption goods department. Extending the analysis now to the capital goods sector we can see that I/v will have to increase as a consequence of the rise in real wages. If money wages increase this will affect also the capital goods sector; the prices there will be marked up and I will increase. If, in the alternative case, the prices in the consumption goods sector decrease this will depress v and in this way again lead to an increase of I/v. Thus the rate of profit in the consumption goods sector will decline for two reasons: The profit margin will decline and the capital-output ratio will increase: e = (1 - F )j$ If the real wage ( w/p ) increases just so much as to compensate for the decline in real cost ( m/z ) we are back in the situation from which we started, as far as the cost-value ratio (c/v = F) is concerned: In fact, the increase in "real wage", as we have seen, will increase the capital-output ratio; this could be avoided only if the "real cost" of the production of capital goods has been reduced to a corresponding extent by technical progress in this sector. Even that,however, would not be sufficient to restore the profit rate to its former level if the capital-capacity ratio had been increased in the process of technical change in the consumption goods department. In fact, it will be realised that a policy of constant"efficiency wage”, that is, of compensating reductions in "real cost" by corresponding increases in real wages is not compatible with an increase in the capital-capacity ratio. But we have hardly heard of that problem in the decades of full employment when something like efficiency wage policy was often practiced, and this seems to confirm the opinion expressed further above that an increase in the capital-capacity ratio can hardly have played a role in that time. If technical progress in the capital goods sector has not kept pace with its advance in the consumption goods department there will be a fall in the rate of profit in the latter department, and a brake on investment. This will produce a structural crisis in the capital goods industries. Sooner or later this will enforce a process of cheapening capital goods by introducing new more efficient types of equipment as a condition for the survival of this industry. In this way the process of innovating by investment can be set in motion again in the consumption goods industries. Thus there seems to be a race between cheapening of output (or of labour) and the cheapening of equipment so that neither gets too far ahead of the other which again tends to explain why the capital-capacity ratio has not risen historically and why it does not rise with the size of the firm.

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