Full text: Introduction

Introduction 
Twenty five years after the first publication of this little book 
I do not find myself in full agreement with everything it contains. Since 
I have no time to re-write it completely I better leave it as it stands and 
try to explain in the following what amendments I should have liked to make. 
My chief amendment concerns an error in interpreting the statistics 
of U.S. corporations which show that fixed capital in relation to turnover 
increases with the size of the firm (Chapter III, Table IX, p. 24). This does 
not demonstrate, as I wrongly concluded, that the larger firms have a higher 
capital coefficient^ in the accepted sense of the term. It is due to a 
different fact, namely, the greater vertical integration of the larger firms. 
In fact, as far as the higher size classes are concerned, Table IX shows that 
the apparent rise in capital-output ratio is strong in paper (where the large 
concerns own forests), metals (where they own mines) and chemicals (where 
vertical integration also plays a large role) while the other industries show no 
increase. 
In the lower size groups the increase is general and can easily be 
explained by the fact that with increasing size hiring is replaced by owner 
ship of buildings, shops, plant, premises, etc., just as purchase of transport 
services, etc., is sometimes replaced by ownership of the means of production. 
By stretching the term a little, all this can also be regarded as vertical 
integration. 
As far as production technique as such is concerned, there is now a 
large amount of evidence, especially engineering data, to show that with 
(2) 
increasing scale of production the capital-coefficient decreases . In fact, 
this is only an application of the principle of large scale economies which 
operates in the production of the equipment no less than in its operation, and 
frequently even more so. More particularly, it is due to the "economies of 
Or capital-output ratio, as I called it. The present use of the terms 
"capital coefficient" and "capital-intensity" for capital per unit of 
output and capital per man had not been firmly established then. 
(2) 
For example, D. Weintraub: Effects of Current and Prospective Techno 
logical Developments upon Capital Formation. American Economic Review, 
Supplement, March 1939. 
J. S. Bain: Barriers to New Competition. Cambridge Mass. 1956. 
C. F. Pratton: Economies of Scale in Manufacturing Industry, Cambridge Uni 
versity Press, 1971. 
J. Haldi and D. Whitcomb: Economies of Scale in Industrial Plants, Journal 
of Political Economy, Aug. 1967
	        

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