5. 
increase the capital coefficient! 
I thought for some time that Chapter III is altogether out of place in this 
book. But this is not true. In fact the analysis is relevant for the whole relation 
of capital intensity, technical progress, economies of scale and the distribution 
of income. 
That technical progress and scale are closely related is prima facie 
plausible. Technical progress proceeds by 1) division of labour (leading ultimately 
to the conveyor belt) 2) replacement of human energy by energy from other sources 
(which involves machinery for energy transformation and application) 3) continuous 
processes 4) self-regulation (automation, computers). These technical changes all 
tend to increase scale, while at the same time they also increase capital per man. 
Some time ago economists used to think that economic progress involves a 
substitution of capital for labour, more capital being used per unit of output. 
Empirical studies (Kuznets, Goldsmith, etc.) have shown that there is no consistent 
long-term trend in this direction.^ Technical progress has proceeded by making 
things cheaper in terms of labour and in terms of capital at the same time. 
There are also considerable doubts about the concept of a "given Technique," 
consisting of "alternative methods" of production of a final good. Production 
methods do not fall from the sky, what in fact really "exists" are only those 
techniques which have been developed, which have been tried out (i.e., where there 
are proto-types, or experimental production runs). In a given country or region 
there will be fairly uniform wage and interest rates and all methods developed 
will be aimed at fitting the prevailing market conditions of the region, so that 
they will by no means differ much; only in different countries on a different 
level of economic and technical development will there be very different combina 
tions of production ingredients in use. To be realistic this picture has only to 
be modified in one respect: The opportunity cost of capital - the ruling profit 
rate - differs in one and the same country for risk capital of different sizes. 
Thus, there is good reason for the simultaneous existence and application of 
different methods of production, insofar as these different methods are used by 
firms of different size. Among the methods existing at one and the same time there 
is often one which is more efficient on all counts. That it does not immediately 
rule out all others is explained by its scale: Not everybody can afford to use it, 
since the risk capital of a firm limits its investment. 
(i) 
S. Kuznets: Capital in the American Economy, Princeton 1961, p. 199, 209, 214.