SECTION II
THE TECHNICAL FRONTIER

CHAPTER 10
THE SPECTRUM OF TECHNIQUES

IF there were only one method of production available for each kind of output in a given phase of technical development, an entrepreneur who had decided upon a scheme of investment (whether to create new productive capacity or to replace equipment which had ceased to be profitable) would have no doubt as to what kind of capital goods to install. We must now take account of the fact that in any state of knowledge a great variety of methods are technically feasible, offering different rates of output per man with different types of equipment, and that the choice between them depends upon their relative profitability at the ruling levels of costs and prices. This very much complicates the foregoing analysis without altering its broad implications.1


THE CHOICE OF TECHNIQUE

When an entrepreneur is planning an investment he wants to be sure, first of all, of not losing any capital (he must be confident of recovering the cost of an initial outlay from quasirent over the earning lifetime of equipment) and, secondly, he wants to obtain the maximum possible profit from the investment. In competitive conditions the price of his product, the money-wage rate and the prices of all kinds of capital goods are given, and (assuming a reasonable degree of tranquillity) he can calculate the rate of profit to be expected from investments appropriate to various techniques. Each

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1
The reader is warned that the argument of this and the following chapters is difficult out of proportion to its importance. After a long excursion we shall return to conclusions substantially the same as those of the last chapter. See below, p. 416, for diagrams illustrating the argument of this section.

-101-

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