Knowledge that Transforms

petition in the narrow sense of the term would appear to be unimportant from a public policy point of view. The real monopoly problems are associated with the large and such a is typically in competition with a few rivals. (2) A large buyer (or seller) can under certain circumstances enforce something like pure competition on his small suppliers (or customers). In the distributive trades highly routinized, inefficient and inflexible performance of function has been changed to the very considerable advantage of consumers by the penetration of large mass distributors. The existence of a large number of small competitors does not necessarily spell efficiency nor does the emergence of the large necessarily imply consumer exploitation. (3) Static analysis, using the few variables customarily considered in the economics of the firm and operating under assumptions of profit maximization, takes us a very little way toward that understanding of the behavior of large firms necessary to effective public policy in this area.

STUDIES based principally on aggregations of income tax returns or SEC registration statements have established the pattern of variation of the average rate of corporate profit according to size of corporation.' It is proposed in this paper to review and interpret the evidence of these aggregations and to explore the additional information that may be obtained from study of the entire distribution of the rates of return, rather than of averages alone. The effect of a tendency of profitable corporations to conceal profits by paying large salaries to management will also be investigated. From this investigation we may conclude that small corporations have greater variability of profits than do large, in two different senses. For any given year the dispersion of profit rate is much greater among small corporations than among large. From bad times to good the profit rates of small and medium sized corporations fluctuate more than do those of large ones. Finally, the small corporations probably misclassify a greater part of their profits as salaries of management, than do large corporations. As a consequence the generalization that might have been inferred from the experience of the thirties, that small corporations earn lower rates of return than do large corporations, is not very reliable, even for the year I937. VARIATION OF AVERAGE RATE OF RETURN WITH SIZE

ECONOMIC literature more often than not regards the period i873-97 in America as a long-wave depression. Such an interpretation rests on two facts. First, the trend of wholesale prices was downward during the period, and reversed itself immediately afterward.' Second, there was an unusually large number of depressed years compared to the periods before and after. For instance, Thorp labels I4 of the years from I873 to I897 inclusive as partly or wholly depression years and only 9 (2 unclassified) as partly or wholly prosperity, whereas for I898-I929 he lists 24 as prosperity and only 8 as depression.2 There has consequently been a tendency to regard I873-97 as comparable with the depressed years of the I930's and to explain both periods on the same grounds. Such comparisons create misleading impressions. The purpose of this note is to correct such impressions and to introduce into the discussion some factors ordinarily given insufficient attention.3