Full text: Small and Big Business

This will counteract the cheapening of capital equipment due 
to scale effects; in other words, the differential profit margin 
of the large firm will be reduced as the large scale methods 
spread, and the value of output will fall relatively to a 
iven capital equipment with given labour cost. The impression 
is that a race between the cheapening of equipment and the 
cheapening of output is continuously on and neither is getting 
too far ahead of the other. 
So much for the interpretation of data. What about the 
theoretical discussion of Chapter III ? My analysis there 
shows under what conditions an increase in capital coefficient 
will be profitable and this analysis may be applied also 
outside the context of the problem of economies of scale. The 
conditions are these: The proportional reduction in cost 
dévided by the proportionate increase in capital-coefficient 
must not be smaller than the profit margin from which we start 
(that is, the profit margin obtained with alternative or usual 
methods), otherwise the profit rate will be lower than at the 
outset (that is, with alternative or usual methods). 
Thus the possibilities of increasing the capital-coefficient 
without reducing the profit rate depend on the size of the 
ruling profit margin, in other words, on the distribution of 
5) Capital is always measured at cost-value, inflated with 
a convenient price index to give a measure of reproduction 

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