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 
output ratio the 
as a condition for 
following relation 
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 
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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