10. 
diversified hierarchical structures designed to save communication lines and 
to loss in efficiency. 
The computer is a great help in improving communication, and, therefore, 
it is a boon to the very big firms. 
To return for a moment to the discussion of capital-intensity: It is 
also connected with the question of the "correct 11 measure of size of an estab 
lishment or firm. I have shown in another place ^ that the pattern of relation 
of size and output per man is quite different according to whether size is 
measured by output or employment. (In the first case a monotonous increasing 
relation obtains, whereas in the second case the output per head first increases, 
then falls with size). I also showed that the difference between the two patterns 
is due to the stochastic character of the data - the dispersions of the individual 
values of output per head round the average. 
What the "correct 11 measure of size is cannot be decided by statistical 
arguments. We are free to choose our definitions on grounds of convenience of 
language, and simplicity of description. On these grounds 1 choose the criterion 
of output capacity; the relations of technical progress, capital-intensity and 
scale which were pictured earlier on could not in principle be changed by a 
different terminology but they would become unnecessary complicated because the 
size of plant in terms of manpower historically first increases, and then in the 
age of automation decreases. If one chose men per plant as the criterion of size, 
(2) 
as Mr. Johnstone proposed, the automated plants would count as small (or 
lower medium) sized, and output per man would accordingly have a maximum at this 
level. I cannot find anything enlightening in this use of language, but it does 
in itself, of course, not contradict my picture of the relations of technical 
progress and scale, which requires in any case a description of the plant in 
terms of several variables (man, output, capital). 
1 turn now to a point on which I would like to correct myself again: 
Just as I was wrong to play down diseconomies I was too unfavourable on the 
chances of the small firms, although my remarks on their shrinking degree of 
Maturity and Stagnation in American Capitalism, Chapter IV, Oxford 1952. 
(2) 
J. Johnstone, Statistical Cost Analysis, London 1960.