Full text: Small and Big Business

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
	        

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