ABSTRACT
N ow that the structure of industry with its firms and plants has been analysed and various possible references of size or scale of production made more definite, we may advance to enunciate, as a working hypothesis, a bold proposition. There are logical reasons for supposing that, granting the advantages of mechanical and human specialization, large-scale production, especiali) when conducted in large-size firms and plants, tends to result in maximum e8ciency.l We use the expression 'large-scale operation' to refer to the large-scale production of any article or service when conducted within one organizati~n.~
Belief in large-scale production, whether or not conducted within one plant or firm, is equivalent to a belief in the economists' law of increasing returns (or, as it is alternately called, decreasing costs), which states that the more the amount of any commodity (goods or service) provided, the greater the return or the less the cost.3 The two alternative phrasings may indeed be combined in this way: 'the more the amount
of any commodity that is provided the greater the efficiency'. For by eficiency I refer to a relation between return (or output) and cost (or input). Efficiency is indicated by the amount of return obtained at any given cost, the precise relation being either a ratio (where efficiency is greater or less according as return divided by cost is greater or less) or a difference (where efficiency is greater or less according as return minus cost is greater or less). Engineers seem to prefer the ratio, business men the differential (sales - costs = profits) standpoint. To be efficient thus means that either the average return, or the differential return is high.
