Many economists for a long time apparently held 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 thinking.
The economist's 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 "optimum scale
of production".)
(3) the idea that producers always operate in the range of
diminishing returns.
In analogy to Ricardo's picture of a fixed amount of land to
which successive doses of input of labour and capital are
applied, we have to picture a given amount of labour to
which successive doses of capital are applied.
This picture, however, would not be adequate to represent
the conditions of an individual plant under modern industrial
conditions, because technical progress may very well involve
a reduction of the labour employed per plant. We plot there
fore capital per man as a function of output per man. The
gradient of a straight line joining the coordinate centre to
a point of this function - the capital coefficient - will
decline over a certain range; later on we can assume for general