Quotes from “Diminishing Returns from Investment”

By Frank Knight (1944)

• The distinction between maintenance and replacement is in most ordinary cases an arbitrary one.#
  Capital
• Knowledge has no other unit of measurement than its cost, and if we are to speak of diminishing returns it must be in terms of a rate of yield on the investment.#
• Apart from technological retrogression, the only cause which can operate to produce diminishing returns is an absolute limitation on the supply of some productive agents (an infinite cost of reduplication, literal or by substitution).#
  Capital
• The essential meaning of new investment under given conditions is the creation of any additional means which were previously known, for the satisfaction (or more complete satisfaction) of wants which were previously known, or in some sense “present.” The difference between change under given conditions and real innovation centers in the matter of new knowledge#
  Capital
• All consumption goods are really productive agents; the only final product is utility or, more accurately, enjoyment or want-satisfaction.#
• In the production of laborers the matter of “quality” is far more important than that of quantity in the crude sense of numbers. A human being in the “raw” state would obviously be a liability, not an asset, and his economic value in later life must be imputed to expenditure (again on balance) in rearing and training. These facts mean that, in terms of economic realities, the “laborer” of any type is essentially a capital good; the (social) sacrifice of consumption invested in producing labor-capacity could have been used to create productive capacity in other forms.#
  Capital
• The worst difficulty with the notion of “factors” [of production] is that only to a very limited extent are productive agents transferred “as they stand” from one “use” to another (however uses are distinguished). In the main, transfer is accompanied in all degrees by disinvestment and reinvestment. This fact makes the theory of capital indispensable to an understanding of qualitative changes, such as might occur in a quantitatively stationary economy, as well as to an understanding of growth (or retrogression). In connection with any social change involving reallocation of production, most productive agents become more or less assimilated to capital goods and have to be considered by the theorist as quantities of capital.#
  Capital
• If new investment can be freely directed to all uses, i.e., embodied in all types of productive agents indifferently, it will not be subject to diminishing returns.#
  Capital