The Problem of Capital Intensity

Abstract

1. In a comparison of small and big firms the question also arises whether they differ as far as their capital-output ratio is concerned. Apart from the ‘morphological’ question of the characteristics of firms of different size, there exists also the different but somehow related question how a growing firm will change and, in the present context, how it will use its accumulating capital: to what extent it will use it to produce the same output with more capital and to what extent for just expanding capacity. This second aspect of the problem leads us to consider the capital-output ratio in a much more general context, including the question of its historical change. For the present moment, we are going to deal only with the comparison of firms of different size. We are not oversupplied with data on capacity or capital. I tried to use the US Statistics of Income for corporations which give capital assets and sales (Table 4.1). Sales can in the present context be regarded as a proxy for gross output. There seems to be a strong increase with size in capital-sales ratios in various industries in the highest size classes, and more generally in all industries in the lowest size classes. The crux of these data is the vertical integration of the big concerns. In fact it is only too easy to see that the strong increase in the capital-sales ratio in the highest size classes of corporations occurs in the pulp and paper industry where the large concerns own forests, in the iron and metal industries where they own mines, and in the chemical and allied products industries where they own oil wells, etc. and means of transport like tankers.