Knowledge that Transforms

an essential part of the theory and study of competition and monopoly. Second, in any industry or other meaningful group, the number of firms, an essential magnitude in Mr. Prais's system, is usually un-knowable with any precision.4 It follows that average size or growth rate is equally unknowable. In any case, Mr. Prais's definition of concentration, as he points out, is a member of the same family as the Gini coefficient (op. cit., 268), or what I called Lorenz-type concentration, and that type has been rejected implicitly by other students, and explicitly by me, again, not for reasons of internal consistency, but of relevance to economic analysis. Mr. Prais's system has the immense advantage (and prestige) of being an extension of the classical statistical system, with all the logical symmetry and practical aids this would imply since it is a sum of squares, for example, it is additive, and significance tests are directly applicable. By comparison, the concentration ratio is a very clumsy and imperfect sort of expedient; the nearest approach to a general theory is in a brilliant paper by Jiirg Niehans.5 It would be incorrect, however, to leave the reader with the impression that Mr. Prais's system is of no interest or use. First, it may be applicable to non-economic problems, or to economic data which neither of us has investigated. Second, we should be interested in differential growth rates as such. Stephen Hymer and Peter Pashigian presented a paper, Firm Size and Differential Growth Rates, to the I958 meetings of the Econometric Society; although they did not have occasion to use measures of Mr. Prais's type, it is conceivable that others could. Finally, it is not only helpful but essential to conceive of the operations of any industry as a general system of random influences which will cause firms to gain or lose position or market share. Tendencies toward greater or lesser concentration, or toward no change, must be fitted into or superimposed upon such a general framework, or else we hail every passing leaf as evidence of the prevailing wind. I do not think Mr. Prais's definition of concentration is of any help in this task, but this is perhaps secondary; it should stimulate thinking toward incorporating the notion of a statistical system into the analysis of industry situations. 4 Ibid., and see the chapter on The Business Population in the forthcoming revision of Historical Statistics of the United States. 5 Jiirg Niehans, Eine Messziffer fur Betriebsgrossen, Zeitschrift fur die Gesamte Staatswissenschaft, iII (I955), 529-42. It is to appear in English in a forthcoming issue of International Economic Papers.

intensive goods to countries other than the United States. This may be considered as supporting the generally held opinion that Japan's foreign trade is two-sided.10 We suspect that foreign trade might have a similar nature. If data were available on the capital-labor ratios for United States exports broken down by countries, then more conclusive findings might be expected about the position of the United States in the international division of labor.11 Another interesting fact is that the capital-labor ratio for United States exports to Japan is not only larger than that for the United States total exports but also exceeds that for competitive imports. This means that United States exports to Japan are more capital-intensive than United States domestic production for replacing its competitive imports from the rest of the world. This would seem also to demand more careful investigation into the so-called Leontief paradox. We would like to refrain from drawing any sweeping conclusions here. 10 Cf. Economic Planning Board, Survey of Japanese Economy (I956-57). ' According to A. Daniere, relative foreign inefficiency is less in the production of B than in the production of A, where A denotes manufactured goods and B raw materials (ores, oils, rubber, and other important United States imports), due to differences in material resource endowment. Since these raw material products, on the whole, require a high capital-labor ratio, the large raw material component of United States imports suggests, in agreement with the authors' view, that the Leontief capital intensiveness situation holds better in the trade with raw material areas than with industrial countries. See Andre Daniere, American Trade Structure and Comparative Cost Theory, Economia Internazionale, Ix (August, I956), 426.