Full text: Introduction

If a situation continuously prevails in which there are unused possibilities 
of applying such efficient (in terms of labor and capital) methods, then this will 
explain why rarely anybody is tempted to use methods which will increase the capital- 
output ratio. In other words, when increasing returns to capital are available in 
quite a number of fields, nobody will force capital-intensification in fields where 
it brings diminishing returns. Another explanation is that the profit margin in big 
business is so large that an increase in the capital-coefficient will not easily be 
possible without a fall in the profit rate. Indeed, if new methods or new products 
are introduced and appear at first to involve a greater capital-coefficient than 
the usual one, then the application may often be delayed until the engineers have 
developed a sufficiently large scale version of the method to keep the capital- 
coefficient down to the usual level of the industry in question. This is not to say 
that the capital-coefficient is everywhere the same, but in fact in manufacturing it 
varies within limits which are not very wide; it is mostly below one, except in 
basic iron and steel. Railways, public utilities and agriculture have capital- 
output ratios considerably above unity. 
The discussion of the relation of capital-coefficient and profit rate in 
Chapter III is obviously related to the discussion of the declining profit rate 
and the increasing organic composition of capital in the work of Karl Marx. Here 
also the objection against the historical reality of an increasing organic compo 
sition can be made, and here also one is tempted to re-interpret: The (anticipated) 
consequence of a declining profit rate should rule out from the very beginning any 
methods which increase the organic composition of capital. 
Many economists for a long time apparently hold views about the capital- 
coefficient which have no sufficient basis in facts. The reason may be the 
enormous role of tradition which often takes the place of information in economic 
The economises prejudice stems from the following ideas: 
(1) a belief in capital accumulation as the only vehicle of economic 
progress (strong virtues of saving) 
(2) the idea that economics is a matter of substitution (where the product 
is regarded as fixed. This could be justified only if we are everywhere far in 
excess of the ,f optimum scale of production.") 
R. N. Grosse, The Structure of Capital, in Studies in the Structure of the 
American Economy, Ed. W. Leontief, New York, 1953.

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