# Full text: The Problem of Capital Intensity

```profit.Here we have, however, the possible necessity for the
innovator to increase his market in view of the scale of his
investment.The situation will therefore be similar to that
encountered in the comparison of firm sizes. We shall assume here
again that the sacrifice needed to overcome the barriers of
imperfect competition is more than outweighed by the gain due to
the new technology. To simplify the following analysis we shall
assume that the reduction in the price-wage ratio needed to
capture the required market is taken account of already in the
initial values of p and w from which we start. In this way we
shall be able to assume constant real wage in the analysis of the
first step of our problem. What happens after the new method is
introduced - after the first step- is another story which we are
going to deal with later. For the present we assume constant real
wages. The changes in the cost-value ratio c/v will then depend
only on the change in output per man. In the same way as we did
with the ratio c/v we can also separate the capital coefficient
I/v into a real and a price element:
I/v = I/z . p’/p .
It will be useful at this point to introduce a new measure, the
capital to cost ratio I/c. This will depend on the real capital
per man I’/m and on the ratio of investment goods prices to wages
in the investment goods industry w': )?'
I/c=I , /m.p’/w’ (6)
The difference between capital per man (capital intensity) and the
capital-output ratio has played a role in the history of
doctrines. Marx did not fully appreciate the importance and
consequences of the distinction also he was evidently aware of it.
The concept of a capital-cost ratio has been introduced above
because it is related to capital per man, as equation (6)
shows.Since we assume wages and prices to be given at this stage
of the argument, capital per man and the capital-cost ratio will
move in step.
Now it is easy to see that the link between the capital per man
and the capital-output ratio is the output per man. A similar
relation can be established for the concepts which we have
introduced. Denoting the capital-cost ratio by = I/c we have
^ = I/v = I/c . c/v = jQ. F
By differentiation we obtain
9
output ratio the
F/F.
as a condition for
following relation
an
increase
in
(7)
the capital-
That is, if the capital-cost ratio increases more quickly than the
cost-value ratio declines then the capital-output ratio will
increase. Seeing that we have assumed constant price-wage
relations this also implies that if capital per man increases more
quickly than product per man then the capital-output ratio will
increase.
That capital per man has historically increased seems to be true.
If this growth had not been matched by a corresponding growth of
output per man the capita1-output ratio would have had to
increase,but most of the empirical evidence as we have already
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