Full text: Small and Big Business

Moreover, these series of historically successive techniques 
are also the ones which can be regarded as being simultaneously 
available to a prospective investor in the field. Whether we 
find in the range of these available methods all three stages 
(increasing, constant and diminishing returns) represented 
cannot be ascertained with confidence. It appears likely, 
however, that the economist's conviction about the importance 
of diminishing returns rests on prejudice, and that we hardly 
ever enter the range of diminishing returns, or of increasing 
capital-output ratios. 
It is conceivable that the relation of profit margin and 
profit rate expounded in Chapter III at least partly explains 
why this should be so: If the capital-output ratio is in 
creased, the profit margin must increase, else the method 
would be rejected because of the implied decline in profit 
rate. As the profit margin increases, a further increase in 
capital-output ratio is less likely to yield a constant profit 
rate. Thus the increase in capital coefficient would tend to 
set limits for itself sooner of 3»ater. Whether this is in 
fact the explanation of the apparent constancy of capital- 
output ratios in history, or their decline with size anc 
advancedness of technique (in a cross section), and the limited 
range of capital-output ratios in manufacturing, cannot he 
decided with confidence.

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