The states of the German Confederation were member states of the German Confederation , from 20 June 1815 until 24 August 1866.
107-410: The Zollverein ( pronounced [ˈtsɔlfɛɐ̯ˌʔaɪn] ), or German Customs Union , was a coalition of German states formed to manage tariffs and economic policies within their territories. Organized by the 1833 Zollverein treaties , it formally started on 1 January 1834. However, its foundations had been in development from 1818 with the creation of a variety of custom unions among
214-613: A Confederation Diet, to meet in Frankfurt. The Habsburg archdukes, now Emperors of Austria, were to serve as permanent presidents of this institution. Isolated voices, such as Joseph Görres and Freiherr vom Stein , called for the abolition of domestic tolls and the creation of a German tariff on imports. The mandate from the Vienna Congress, however, established the German Confederation , but did not deal with
321-460: A company gains an added benefit by expanding its size. These economies are due to the presence of some resource or competence that is not fully utilized, or to the existence of specific market positions that create a differential advantage in expanding the size of the firms. That growth economies disappear once the scale size expansion process is completed. For example, a company that owns a supermarket chain benefits from an economy of growth if, opening
428-591: A differentiated demand with respect to the quality of the product, and assistance before and after the sale. Very different organizational forms can therefore co-exist in the same sector of activity, even in the presence of economies of scale, such as, for example, flexible production on a large scale, small-scale flexible production, mass production, industrial production based on rigid technologies associated with flexible organizational systems and traditional artisan production. The considerations regarding economies of scale are therefore important, but not sufficient to explain
535-421: A firm's costs, returns to scale describe the relationship between inputs and outputs in a long-run (all inputs variable) production function. A production function has constant returns to scale if increasing all inputs by some proportion results in output increasing by that same proportion. Returns are decreasing if, say, doubling inputs results in less than double the output, and increasing if more than double
642-791: A member in 1817; merged with Grand Duchy of Hesse in 1866) 38. The Free Hanseatic City of Bremen (still a constitutive state of Germany) 39. The Free City of Frankfurt upon Main 40. The Free and Hanseatic City of Hamburg (still a constitutive state of Germany) 41. The Free and Hanseatic City of Lübeck The four free cities were republics by constitution, while all the others were monarchies, some constitutional and some absolutist . Economies of scale 1800s: Martineau · Tocqueville · Marx · Spencer · Le Bon · Ward · Pareto · Tönnies · Veblen · Simmel · Durkheim · Addams · Mead · Weber · Du Bois · Mannheim · Elias In microeconomics , economies of scale are
749-427: A more efficient division of labour. The economies of division of labour derive from the increase in production speed, from the possibility of using specialized personnel and adopting more efficient techniques. An increase in the division of labour inevitably leads to changes in the quality of inputs and outputs. Many administrative and organizational activities are mostly cognitive and, therefore, largely independent of
856-407: A new supermarket, it gets an increase in the price of the land it owns around the new supermarket. The sale of these lands to economic operators, who wish to open shops near the supermarket, allows the company in question to make a profit, making a profit on the revaluation of the value of building land. Overall costs of capital projects are known to be subject to economies of scale. A crude estimate
963-496: A product X is lower when a single firm instead of two separate firms produce it. See Economies of scope#Economics . Some of the economies of scale recognized in engineering have a physical basis, such as the square–cube law , by which the surface of a vessel increases by the square of the dimensions while the volume increases by the cube. This law has a direct effect on the capital cost of such things as buildings, factories, pipelines, ships and airplanes. In structural engineering,
1070-547: A relationship somewhat similar to the square–cube law. In some productions, an increase in the size of the plant reduces the average variable cost, thanks to the energy savings resulting from the lower dispersion of heat. Economies of increased dimension are often misinterpreted because of the confusion between indivisibility and three-dimensionality of space. This confusion arises from the fact that three-dimensional production elements, such as pipes and ovens, once installed and operating, are always technically indivisible. However,
1177-461: A result, numerous studies have indicated that the procurement volume must be sufficiently high to provide sufficient profits to attract enough suppliers, and provide buyers with enough savings to cover their additional costs. However, Shalev and Asbjornse found, in their research based on 139 reverse auctions conducted in the public sector by public sector buyers, that the higher auction volume, or economies of scale, did not lead to better success of
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#17327652430121284-680: A system of free trade. The problems in Britain established precedent for problems in the German states; the British limitation on grain imports, through the Corn Laws , blocked economic recovery in the German states, particularly in eastern Prussia, by limiting the amount of grain that could be imported into Britain. Not only did the Corn Laws keep the price of grain in Britain high, they undermined
1391-733: A unit of capacity of many types of equipment, such as electric motors, centrifugal pumps, diesel and gasoline engines, decreases as size increases. Also, the efficiency increases with size. Operating crew size for ships, airplanes, trains, etc., does not increase in direct proportion to capacity. (Operating crew consists of pilots, co-pilots, navigators, etc. and does not include passenger service personnel.) Many aircraft models were significantly lengthened or "stretched" to increase payload. Many manufacturing facilities, especially those making bulk materials like chemicals, refined petroleum products, cement and paper, have labor requirements that are not greatly influenced by changes in plant capacity. This
1498-440: A variety of organizational and business situations and at various levels, such as a production, plant or an entire enterprise. When average costs start falling as output increases, then economies of scale occur. Some economies of scale, such as capital cost of manufacturing facilities and friction loss of transportation and industrial equipment, have a physical or engineering basis . The economic concept dates back to Adam Smith and
1605-497: A way to improve the economies; and third, to strengthen Germany against potential French aggression while reducing the economic independence of smaller states. The Zollverein created a larger market for German-made farm and handicraft products and promoted commercial unification under fiscally sound economic parameters. While the Union sought to limit trade and commercial barriers between and among member states, it continued to uphold
1712-445: Is a correlating relationship between a firm's total sales and underlying efficiency. Firms with higher productivity will always outperform a firm with lower productivity which will lead to lower sales. Through trade liberalization, organizations are able to drop their trade costs due to export growth. However, trade liberalization does not account for any tariff reduction or shipping logistics improvement. However, total economies of scale
1819-632: Is a historically contingent fact, and not essential to the nature of such enterprises. In the case of agriculture, for example, Marx calls attention to the sophistical nature of the arguments used to justify the system of concentrated ownership of land: Instead of concentrated private ownership of land, Marx recommends that economies of scale should instead be realized by associations : Alfred Marshall notes that Antoine Augustin Cournot and others have considered "the internal economies [...] apparently without noticing that their premises lead inevitably to
1926-477: Is based on the exporters individual frequency and size. So large-scale companies are more likely to have a lower cost per unit as opposed to small-scale companies. Likewise, high trade frequency companies are able to reduce their overall cost attributed per unit when compared to those of low-trade frequency companies. Economies of scale is related to and can easily be confused with the theoretical economic notion of returns to scale. Where economies of scale refer to
2033-411: Is because labor requirements of automated processes tend to be based on the complexity of the operation rather than production rate, and many manufacturing facilities have nearly the same basic number of processing steps and pieces of equipment, regardless of production capacity. Karl Marx noted that large scale manufacturing allowed economical use of products that would otherwise be waste. Marx cited
2140-424: Is expanded, including the aspects concerning the development of knowledge and the organization of transactions, it is possible to conclude that economies of scale do not always lead to monopoly. In fact, the competitive advantages deriving from the development of the firm's capabilities and from the management of transactions with suppliers and customers can counterbalance those provided by the scale, thus counteracting
2247-553: Is introduced to facilitate revenue-sharing. The German Empire is formed. The original customs union was not ended in 1866 with outbreak of the Austro-Prussian War , but a substantial reorganization emerged in 1867. The new Zollverein was stronger, in that no individual state had a veto. When eventually Hamburg acceded to the Customs Union in 1888 it negotiated the exemption of an area of 4 square miles at
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#17327652430122354-425: Is no Fatherland! In 1820, Württemberg planned to start a customs union among the so-called Third Germany: the middle-sized German states, including itself, Baden , Bavaria , and the two Hessian states ( Hesse-Darmstadt and Hesse-Kassel ). This customs union excluded both Austria and Prussia, primarily because the two major German powers were considered too overbearing. Plans foundered on the differing interests of
2461-442: Is one where the costs of production fall when the number of firms in the industry drops, but the remaining firms increase their production to match previous levels. Conversely, an industry exhibits an external economy of scale when costs drop due to the introduction of more firms, thus allowing for more efficient use of specialized services and machinery. Economies of scale exist whenever the total cost of producing two quantities of
2568-505: Is possible within a particular country—for example, it would not be efficient for Liechtenstein to have its own carmaker if they only sold to their local market. A lone carmaker may be profitable, but even more so if they exported cars to global markets in addition to selling to the local market. Economies of scale also play a role in a " natural monopoly ". There is a distinction between two types of economies of scale: internal and external. An industry that exhibits an internal economy of scale
2675-608: Is saturating the regional market, thus having to ship products uneconomic distances. Other limits include using energy less efficiently or having a higher defect rate. Large producers are usually efficient at long runs of a product grade (a commodity) and find it costly to switch grades frequently. They will, therefore, avoid specialty grades even though they have higher margins. Often smaller (usually older) manufacturing facilities remain viable by changing from commodity-grade production to specialty products. Economies of scale must be distinguished from economies stemming from an increase in
2782-433: Is that if the capital cost for a given sized piece of equipment is known, changing the size will change the capital cost by the 0.6 power of the capacity ratio (the point six to the power rule ). In estimating capital cost, it typically requires an insignificant amount of labor, and possibly not much more in materials, to install a larger capacity electrical wire or pipe having significantly greater capacity. The cost of
2889-822: The Prussian-Hessian Customs Union (PHCU). The states that previously joined the Prussian customs system are included. 24 September: By the Treaty of Kassel , the Central German Commercial Union (CGCU) is formed by central and northern German states ( Saxony , Hanover , Hesse-Kassel , Saxe-Weimar , Saxe-Altenburg , Saxe-Coburg , Nassau , Schwarzburg-Rudolstadt , Frankfurt , Saxe-Meiningen , Brunswick , Schwarzburg-Sondershausen , Reuss-Greiz , Reuss-Gera , Bremen , Oldenburg , and Hesse-Homburg ). A German census
2996-536: The United Kingdom until 1837) 5. The Kingdom of Saxony 6. The Kingdom of Württemberg 7. The Electorate of Hesse (also known as Hesse-Kassel) 8. The Grand Duchy of Baden 9. The Grand Duchy of Hesse (also known as Hesse-Darmstadt) 10. The Grand Duchy of Luxemburg (in personal union with the United Kingdom of the Netherlands ; lost over half of its territory in the west to Belgium in
3103-521: The Zollverein set the groundwork for the unification of Germany under Prussian guidance. This traditional view is disputed by historians such as Hans-Joachim Voth who contend that far from allowing Prussia to increase its political influence over the smaller states, the customs union may have had the contrary effect: many governments used the increased revenue brought by the customs union to try to consolidate their independence. The smaller states entered
3210-415: The short-run average total cost (SRATC) curve down and to the right. Economies of scale is a concept that may explain patterns in international trade or in the number of firms in a given market. The exploitation of economies of scale helps explain why companies grow large in some industries. It is also a justification for free trade policies, since some economies of scale may require a larger market than
3317-648: The status quo , not to fix the problems created by toll barriers. In 1834, Baden and Württemberg joined the Prussian union, which was renamed the German Customs Union. The Tax Union or Steuerverein was formed in 1834 as a customs union first of the Duchy of Brunswick and the Kingdom of Hanover, then with the Grand Duchy of Oldenburg in 1836. By 1835, the German Customs Union had expanded to include
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3424-417: The "physical" point of view of the returns to scale. Furthermore, supply contracts entail fixed costs which lead to decreasing average costs if the scale of production increases. This is of important utility in the study of corporate finance . Economies of productive capacity balancing derives from the possibility that a larger scale of production involves a more efficient use of the production capacities of
3531-625: The 1790s in the German -speaking Holy Roman Empire in Central Europe, there were approximately 1800 customs barriers. Even within the Prussian state itself, there were, at the beginning of the 19th century, more than 67 local customs and tariffs, with as many customs borders. To travel from Königsberg in East Prussia to Cologne , for example, a shipment was inspected and taxed about 80 times. Each customs inspection at each border slowed
3638-707: The British economy. The combination of war and isolation from Britain's trading system destroyed markets for external raw materials and for manufactured goods, resulting in the near ruin of the Central European economy. Especially hard hit were the trading economies of the Lowlands and Rhineland states, which had relied heavily upon imports of raw materials from throughout the world, and on the export of finished products. The domestic markets in Central Europe were not large enough to sustain consumption of their own production. These problems were dramatically exacerbated by
3745-583: The Confederation. The addition of territory to the existing Prussian state made elimination of customs barriers a powerful factor in Prussian politics. The significant differences between "old" Prussia and the newly acquired territories complicated the debate. The "newer" Prussian provinces in the Rhineland and Westphalia, with their developing manufacturing sectors, contended with the heavily agricultural territories of "old" Prussia. The dissimilarities in
3852-626: The Ducal Ministry in the Grand Duchy of Baden and the author of Baden's 1819 proposed customs initiative with the German Confederation, offered a widely publicized description about the difficulties of surmounting such protections: The 38 toll barriers in Germany cripple domestic traffic and bring more or less the same results: how if every limb of the human body were bound together, so that blood could not flow from one limb to
3959-631: The French expansion. Most of the imperial cities, imperial abbeys, and ecclesiastical states and cities were mediatized or secularized in 1803. With the final dissolution of the Holy Roman Empire in 1806, most of the remaining tiny principalities were annexed by larger neighbors. Historians have analyzed three Prussian goals in the development of the Zollverein : first, as a political tool to eliminate Austrian influence in Germany; second, as
4066-772: The German Confederation On the whole, its territory nearly coincided with that remaining in the Holy Roman Empire at the outbreak of the French Revolution , with the notable exception of Belgium . Except for the two rival major powers, Austria and Prussia , and the western left bank of the Rhine (which France had annexed, with tiny Katzenelnbogen ), the other member states (or their precursors) had been within Napoleon's Confederation of
4173-409: The German states. By 1866, the Zollverein included most of the German states. The Zollverein was not part of the German Confederation (1815-1866). The foundation of the Zollverein was the first instance in history in which independent states consummated a full economic union without the simultaneous creation of a political federation or union . Prussia was the primary driver behind
4280-413: The Kingdom of Denmark ) 23. The Duchy of Saxe-Meiningen 24. The Duchy of Anhalt-Bernburg (merged with Anhalt-Dessau in 1863) 25. The Duchy of Anhalt-Dessau (Duchy of Anhalt-Dessau-Köthen from 1853; Duchy of Anhalt from 1863) 26. The Duchy of Anhalt-Köthen (merged with Anhalt-Dessau in 1853) The Duchy of Schleswig was never a member state. But Schleswig was traditionally connected to
4387-833: The Kingdom of Denmark ; not a former member of the Confederation of the Rhine) 17. The Duchy of Limburg (became a member in 1839 in personal union with the Netherlands as compensation for territorial losses in the Grand Duchy of Luxemburg that were caused by the breakup of the United Kingdom of the Netherlands .) 18. The Duchy of Nassau 19. The Duchy of Saxe-Coburg-Saalfeld ( Saxe-Coburg and Gotha from 1826) 20. The Duchy of Saxe-Gotha-Altenburg ( Saxe-Altenburg from 1826) 21. The Duchy of Saxe-Hildburghausen (dissolved in 1826; territory merged with Saxe-Meiningen ) 22. The Duchy of Saxe-Lauenburg (in personal union with
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4494-527: The Napoleonic Wars. Unemployment and high prices, especially for foodstuffs, characterized an economy not yet converted back to peacetime needs. The problem in Britain was particularly severe and the British response created a ripple effect that worsened problems in the German states: In trying to manage the post-war economy, the British government was caught between the Malthusian understanding of
4601-710: The Rhine , and the other satellite creations of Napoleonic France, sought to establish autarky in European trade. By 1806, as Napoleon I sought to secure his hegemony in Europe, the Continental System offered a semblance of unified effort toward a widespread domestic market for European goods. However, the main purpose of the Continental System was military, not economic. Napoleon wanted a trade embargo against Britain , through which he hoped to wreck
4708-891: The Rhine . 1. The Austrian Empire , excluding the Kingdom of Hungary , the Principality of Transylvania , and the Kingdom of Croatia (all of which became parts of the apostolic kingdom of Hungary within the Danubian Dual Monarchy ), the Kingdom of Lombardy–Venetia (constituting parts lost to Italy in 1859- viz. 1866), the Duchy of Bukovina , and the kingdoms of Dalmatia and Galicia (but including, from 1818 till 1850, Duchy of Oświęcim and Duchy of Zator ) 2. The Kingdom of Prussia (excluding Posen , East Prussia and West Prussia ) 3. The Kingdom of Bavaria 4. The Kingdom of Hanover (in personal union with
4815-511: The advantages of external economies linked to an increase in the production of an entire sector of activity. However, "those economies which are external from the point of view of the individual firm, but internal as regards the industry in its aggregate, constitute precisely the class which is most seldom to be met with." "In any case - Sraffa notes – in so far as external economies of the kind in question exist, they are not linked to be called forth by small increases in production," as required by
4922-722: The affected states. While the economic development in Baden proceeded relatively well, with its long borders and well entrenched infrastructure for trade, economic development in Bavaria lagged well behind it, and the Bavarian regime enacted a protective tariff on goods produced outside its border. The result was a short lived trade agreement between Baden and Hesse-Darmstadt. Nevertheless, a second agreement, reached in Stuttgart in 1825, established rapport between Württemberg and Bavaria, with
5029-475: The agreements setting the foundation for Zollverein cementing strong economic ties between the various Prussian and Hohenzollern territories, and ensuring economic contact between non-contiguous holdings of the Hohenzollern family, also the ruling family of Prussia . It was formed to remove the various obstacles (such as different weights and measures in German states) to economic exchange and growth by
5136-569: The assumption of free competition to address the study of firms that have their own particular market. This stimulated a whole series of studies on the cases of imperfect competition in Cambridge. However, in the succeeding years Sraffa followed a different path of research that brought him to write and publish his main work Production of commodities by means of commodities ( Sraffa 1966 ). In this book, Sraffa determines relative prices assuming no changes in output, so that no question arises as to
5243-431: The auction. They found that auction volume did not correlate with competition, nor with the number of bidders, suggesting that auction volume does not promote additional competition. They noted, however, that their data included a wide range of products, and the degree of competition in each market varied significantly, and offer that further research on this issue should be conducted to determine whether these findings remain
5350-431: The average cost for all firms as opposed to internal economies of scale which only allows benefits to the individual firm. Advantages that arise from external economies of scale include; Firms are able to lower their average costs by buying their inputs required for the production process in bulk or from special wholesalers. Firms might be able to lower their average costs by improving their management structure within
5457-434: The base of dynamic economies of scale, associated with the process of growth of the scale dimension and not to the dimension of scale per se. Learning by doing implies improvements in the ability to perform and promotes the introduction of incremental innovations with a progressive lowering of average costs. Learning economies are directly proportional to the cumulative production ( experience curve ). Growth economies emerge if
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#17327652430125564-455: The breakup of the United Kingdom of the Netherlands in 1839, thereby resulting in the Duchy of Limburg becoming a member.) 11. The Grand Duchy of Mecklenburg-Schwerin 12. The Grand Duchy of Mecklenburg-Strelitz 13. The Grand Duchy of Oldenburg 14. The Grand Duchy of Saxe-Weimar-Eisenach 15. The Duchy of Brunswick (prior Brunswick-Lunenburgian Principality of Wolfenbüttel ) 16. The Duchy of Holstein (in personal union with
5671-508: The capitalist system is therefore characterized by two tendencies, connected to economies of scale: towards a growing concentration and towards economic crises due to overproduction. In his 1844 Economic and Philosophic Manuscripts , Karl Marx observes that economies of scale have historically been associated with an increasing concentration of private wealth and have been used to justify such concentration. Marx points out that concentrated private ownership of large-scale economic enterprises
5778-476: The centre of its port, which remained outside of the Zollverein . Bremen (which includes Bremerhaven) had a similar agreement. According to one study, "The Zollverein was the most important institutional development for Germany's economic unification during the middle of the 19th century. It had a strong impact on regional development, changing regional fortunes by the opening and closing of markets." According to economic historians Helmut Böhme and H.-U. Wehler,
5885-452: The chemical industry as an example, which today along with petrochemicals, remains highly dependent on turning various residual reactant streams into salable products. In the pulp and paper industry, it is economical to burn bark and fine wood particles to produce process steam and to recover the spent pulping chemicals for conversion back to a usable form. Large and more productive firms typically generate enough net revenues abroad to cover
5992-425: The conclusion that, whatever firm first gets a good start will obtain a monopoly of the whole business of its trade … ". Marshall believes that there are factors that limit this trend toward monopoly, and in particular: Piero Sraffa observes that Marshall, in order to justify the operation of the law of increasing returns without it coming into conflict with the hypothesis of free competition, tended to highlight
6099-447: The cost advantages that enterprises obtain due to their scale of operation, and are typically measured by the amount of output produced per unit of time . A decrease in cost per unit of output enables an increase in scale that is, increased production with lowered cost. At the basis of economies of scale, there may be technical, statistical, organizational or related factors to the degree of market control. Economies of scale arise in
6206-667: The creation of the customs union. Austria was excluded from the Zollverein because of its highly protectionist trade policy, the unwillingness to split its customs territory into the separate Austrian, Hungarian and Galician-Lodomerian ones, as well as due to opposition of Prince von Metternich to the idea. By the founding of the North German Confederation in 1867, the Zollverein covered states of approximately 425,000 square kilometres (164,000 sq mi), and had produced economic agreements with several non-German states, including Sweden–Norway . After
6313-428: The customs union for purely fiscal reasons, and as the events of 1866 were to demonstrate, membership in the Zollverein did not in the least lead to any form of political commitment toward Berlin, as many states remained suspicious of Prussia and generally pro-Austrian. The impact of the Zollverein on German unification may have been more incidental because it never intended to be a political platform but focused on
6420-521: The customs. The impasse was overcome through external forces. With the repeal of the Continental System, the German tradesmen stood in direct conflict with the English industry. A united German Trade and Tradesmens Union demanded protection from English exports. Their spokesman, the economist Friedrich List , feared that the German people would end up as "drawers of water and hewers of wood for Britain". Similarly, Karl Friedrich Nebenius , later president of
6527-1118: The duchies of Holstein and Lauenburg, which were member states. In 1848-51 (during the First Schleswig War ), it was treated by the German states and the short-lived German Empire as a kind of member. In 1864, the Danish king transferred the three duchies to Austria and Prussia (after the Second Schleswig War ). 27. The Principality of Hohenzollern-Hechingen (merged with Kingdom of Prussia in 1850) 28. The Principality of Hohenzollern-Sigmaringen (merged with Kingdom of Prussia in 1850) 29. The Principality of Liechtenstein 30. The Principality of Lippe 31. The Principality of Reuss Junior Line 32. The Principality of Reuss Senior Line 33. The Principality of Schaumburg-Lippe 34. The Principality of Schwarzburg-Rudolstadt 35. The Principality of Schwarzburg-Sondershausen 36. The Principality of Waldeck and Pyrmont 37. The Landgraviate of Hesse-Homburg (became
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#17327652430126634-404: The economic circumstances, nor did it make any effort to achieve economic and trade standardization. Instead, the articles that established the Confederation suggested that trade and transportation questions be discussed at a later date. Prussia and the central and southwestern states of Hesse-Kassel and Hesse-Darmstadt , Württemberg , Baden , and Bavaria were leaders in the modernization of
6741-462: The economies of scale due to the increase in size do not depend on indivisibility but exclusively on the three-dimensionality of space. Indeed, indivisibility only entails the existence of economies of scale produced by the balancing of productive capacities, considered above; or of increasing returns in the utilisation of a single plant, due to its more efficient use as the quantity produced increases. However, this latter phenomenon has nothing to do with
6848-434: The economies of scale which, by definition, are linked to the use of a larger plant. At the base of economies of scale there are also returns to scale linked to statistical factors. In fact, the greater of the number of resources involved, the smaller, in proportion, is the quantity of reserves necessary to cope with unforeseen contingencies (for instance, machine spare parts, inventories, circulating capital, etc.). One of
6955-545: The economy. As it constituted the main feature of Berlin's "German policy" for many years, Prussian ministers and other government officials became accustomed to think in terms of Germany as a whole and to look beyond specifically Prussian benefits when looking for a consensus across Germany. According to revisionist historians, the Zollverein may not even have been instrumental in bringing about Prussia's economic preeminence in Germany. They argue that nothing seems to indicate that industrial investments increased decisively during
7062-422: The factors underlying the ever-increasing concentration of capital. Marx observes that in the capitalist system the technical conditions of the work process are continuously revolutionized in order to increase the surplus by improving the productive force of work. According to Marx, with the cooperation of many workers brings about an economy in the use of the means of production and an increase in productivity due to
7169-410: The firm increase, the notions of increasing returns to scale and economies of scale can be considered equivalent. However, if input prices vary in relation to their quantities purchased by the company, it is necessary to distinguish between returns to scale and economies of scale. The concept of economies of scale is more general than that of returns to scale since it includes the possibility of changes in
7276-518: The firm is a perfect competitor in all input markets, and thus the per-unit prices of all its inputs are unaffected by how much of the inputs the firm purchases, then it can be shown that at a particular level of output, the firm has economies of scale if and only if it has increasing returns to scale, has diseconomies of scale if and only if it has decreasing returns to scale, and has neither economies nor diseconomies of scale if it has constant returns to scale. In this case, with perfect competition in
7383-454: The firm is so big in one or more input markets that increasing its purchases of an input drives up the input's per-unit cost, then the firm could have diseconomies of scale in that range of output levels. Conversely, if the firm is able to get bulk discounts of an input, then it could have economies of scale in some range of output levels even if it has decreasing returns in production in that output range. In essence, returns to scale refer to
7490-435: The fixed costs associated with exporting. However, in the event of trade liberalization, resources will have to be reallocated toward the more productive firm, which raises the average productivity within the industry. Firms differ in their labor productivity and the quality of their products, so more efficient firms are more likely to generate more net income abroad and thus become exporters of their goods or services. There
7597-552: The foundation of the South German Customs Union. In opposition to the Prussian activities, Hanover , Saxony , Hesse, and other states (Austria, France, Great Britain, and the Netherlands), developed their own economic agreements. While they promised one another not to join the Prussian union, they did develop trade agreements of their own. The Union remained unsuccessful, because it only sought to maintain
7704-616: The founder of political economy as an autonomous discipline. John Stuart Mill , in Chapter IX of the First Book of his Principles, referring to the work of Charles Babbage (On the economics of machines and manufactories), widely analyses the relationships between increasing returns and scale of production all inside the production unit. In Das Kapital (1867), Karl Marx , referring to Charles Babbage , extensively analyzed economies of scale and concludes that they are one of
7811-586: The founding of the German Empire in 1871, the Empire assumed the control of the customs union. However, not all states within the Empire were part of the Zollverein until 1888 ( Hamburg for example). Conversely, though Luxembourg was a state independent of the German Empire, it remained in the Zollverein until 1919. The splintering of territory and states over generations meant that by
7918-438: The idea of obtaining larger production returns through the use of division of labor. Diseconomies of scale are the opposite. Economies of scale often have limits, such as passing the optimum design point where costs per additional unit begin to increase. Common limits include exceeding the nearby raw material supply, such as wood in the lumber, pulp and paper industry . A common limit for a low cost per unit weight commodities
8025-479: The increase in the division of labour. Furthermore, the increase in the size of the machinery allows significant savings in construction, installation and operation costs. The tendency to exploit economies of scale entails a continuous increase in the volume of production which, in turn, requires a constant expansion of the size of the market. However, if the market does not expand at the same rate as production increases, overproduction crises can occur. According to Marx
8132-419: The individual phases of the production process. If the inputs are indivisible and complementary, a small scale may be subject to idle times or to the underutilization of the productive capacity of some sub-processes. A higher production scale can make the different production capacities compatible. The reduction in machinery idle times is crucial in the case of a high cost of machinery. A larger scale allows for
8239-637: The influence of the Austrian Habsburgs, balanced at the periphery by the Russian empire in the east, and the French in the west. Prussia was expected to play some role in these spheres of influence, but the ambiguities of the Austrian and Prussian relationship were unresolved. The German states retained autonomy; however, the old imperial institution of the Reichstag was converted to the form of
8346-562: The majority of the states of the German Confederation , even Saxony, the Thuringian states, Württemberg and Baden, Bavaria, and the Hessian states. Functionally, it removed many internal customs barriers, while upholding a protectionist tariff system with foreign trade partners. 25 October: Schwarzburg-Sondershausen joins the Prussian customs system. 14 February: By treaty, Prussia and the Grand Duchy of Hesse (Hesse-Darmstadt) form
8453-424: The marginalist theory of price. Sraffa points out that, in the equilibrium theory of the individual industries, the presence of external economies cannot play an important role because this theory is based on marginal changes in the quantities produced. Sraffa concludes that, if the hypothesis of perfect competition is maintained, economies of scale should be excluded. He then suggests the possibility of abandoning
8560-428: The new commercial classes, creating a national unity in economic matter at a time when Germany was divided. Surmounting the domestic customs, and the individual states' dependence on those customs as their primary source of income, proved to be a difficult problem. The myriad of customs barriers restricted trade and hampered the industrial development, but the rulers of the states were reluctant to forgo their income from
8667-561: The numerous excise taxes and tolls which were the main source of state income. Reduction in trade meant the near bankruptcy of the smaller states. At the Congress of Vienna in 1814 and 1815, diplomats – principally those from the Great Powers – confirmed the remapping of Europe, and broadly, the rest of the world, into spheres of influence. Central Europe, or German-speaking Europe, remained largely within
8774-512: The other? In order to trade from Hamburg to Austria, from Berlin to the Swiss Cantons, one must cut through the statutes of ten states, study ten tolls and toll barriers, ten times go through the toll barriers, and ten times pay the tolls. Who but the unfortunate has to negotiate such borders? To live with such borders? Where three or four states collide, there one must live his whole life under evil, senseless tolls and toll restrictions. That
8881-411: The output market the long-run equilibrium will involve all firms operating at the minimum point of their long-run average cost curves (i.e., at the borderline between economies and diseconomies of scale). If, however, the firm is not a perfect competitor in the input markets, then the above conclusions are modified. For example, if there are increasing returns to scale in some range of output levels, but
8988-475: The output. If a mathematical function is used to represent the production function, and if that production function is homogeneous , returns to scale are represented by the degree of homogeneity of the function. Homogeneous production functions with constant returns to scale are first degree homogeneous, increasing returns to scale are represented by degrees of homogeneity greater than one, and decreasing returns to scale by degrees of homogeneity less than one. If
9095-512: The period in Prussia, or that the customs union played a significant role in reducing the dominance of agriculture in the kingdom's economy. In 1840 the poet August Heinrich Hoffmann von Fallersleben published, in his Unpolitische Lieder , a song entitled Der deutsche Zollverein which ironically compares the economic advantages of a customs union to the political unity which the German Confederation had failed to achieve. States of
9202-405: The presence of significant economies of scale. This contradiction, between the empirical evidence and the logical incompatibility between economies of scale and competition, has been called the 'Cournot dilemma'. As Mario Morroni observes, Cournot's dilemma appears to be unsolvable if we only consider the effects of economies of scale on the dimension of scale. If, on the other hand, the analysis
9309-450: The price of inputs when the quantity purchased of inputs varies with changes in the scale of production. The literature assumed that due to the competitive nature of reverse auctions , and in order to compensate for lower prices and lower margins, suppliers seek higher volumes to maintain or increase the total revenue. Buyers, in turn, benefit from the lower transaction costs and economies of scale that result from larger volumes. In part as
9416-569: The production of a given plant. When a plant is used below its optimal production capacity , increases in its degree of utilization bring about decreases in the total average cost of production. Nicholas Georgescu-Roegen (1966) and Nicholas Kaldor (1972) both argue that these economies should not be treated as economies of scale. The simple meaning of economies of scale is doing things more efficiently with increasing size. Common sources of economies of scale are purchasing (bulk buying of materials through long-term contracts), managerial (increasing
9523-553: The protectionist barriers against outsiders. According to economic historian Florian Ploeckl, the commonly accepted view among economic historians is that Prussia was motivated to create Zollverein in order to achieve economies of scale in customs administration, thus leading to substantial fiscal savings. During the Napoleonic Era, efforts in the Rhineland toward economic unity had mixed success. The Confederation of
9630-400: The reasons firms appear is to reduce transaction costs . A larger scale generally determines greater bargaining power over input prices and therefore benefits from pecuniary economies in terms of purchasing raw materials and intermediate goods compared to companies that make orders for smaller amounts. In this case, we speak of pecuniary economies, to highlight the fact that nothing changes from
9737-586: The relationship of wages, prices, and population, and the Ricardian model . On the one hand, adherents to the Malthusian model believed it was dangerous for Britain to rely on imported corn, because lower prices would reduce wages, and landlords and farmers would lose purchasing power. On the other hand, adherents to the Ricardian model thought that Britain could use its capital and population to advantage in
9844-441: The same when purchasing the same product for both small and high volumes. Keeping competitive factors constant, increasing auction volume may further increase competition. The first systematic analysis of the advantages of the division of labour capable of generating economies of scale, both in a static and dynamic sense, was that contained in the famous First Book of Wealth of Nations (1776) by Adam Smith , generally considered
9951-426: The scale of production. When the size of the company and the division of labour increase, there are a number of advantages due to the possibility of making organizational management more effective and perfecting accounting and control techniques. Furthermore, the procedures and routines that turned out to be the best can be reproduced by managers at different times and places. Learning and growth economies are at
10058-479: The secularization of many ecclesiastical territories, and the so-called mediatization , i.e. the annexation to larger neighboring territories, of many of the formerly free imperial territories, including most of the imperial cities . Considerable portions of the Habsburg family territories in southwestern Central Europe were "mediatized", or given as compensation, to the princes and dukes who had lost territories in
10165-546: The shipment's progress from source to destination, and each assessment on the shipment reduced profit and increased the price of goods, dramatically stifling trade. When France defeated the Second Coalition , made up of Russian , Austrian and German forces, and annexed territories up to the Rhine , there was a general consolidation of the myriad of tiny states in Germany in the Mediatization of 1803 . This
10272-427: The size of the company and the market structure. It is also necessary to take into account the factors linked to the development of capabilities and the management of transaction costs. External economies of scale tend to be more prevalent than internal economies of scale. Through the external economies of scale, the entry of new firms benefits all existing competitors as it creates greater competition and also reduces
10379-446: The specialization of managers), financial (obtaining lower- interest charges when borrowing from banks and having access to a greater range of financial instruments), marketing (spreading the cost of advertising over a greater range of output in media markets ), and technological (taking advantage of returns to scale in the production function). Each of these factors reduces the long run average costs (LRAC) of production by shifting
10486-449: The strength of beams increases with the cube of the thickness. Drag loss of vehicles like aircraft or ships generally increases less than proportional with increasing cargo volume, although the physical details can be quite complicated. Therefore, making them larger usually results in less fuel consumption per ton of cargo at a given speed. Heat loss from industrial processes vary per unit of volume for pipes, tanks and other vessels in
10593-399: The tendency towards a monopoly inherent in economies of scale. In other words, the heterogeneity of the organizational forms and of the size of the companies operating in a sector of activity can be determined by factors regarding the quality of the products, the production flexibility, the contractual methods, the learning opportunities, the heterogeneity of preferences of customers who express
10700-527: The toll system within the German states. In the Prussian case, the experience of the Confederation of the Rhine in removing customs barriers offered an example of how it could be done, and Hans, Count von Bülow , who until 1811 had been the Finance Minister in Westphalia , and who had accepted this position in 1813 in Prussia, modeled the Prussian customs statutes on those of the former states of
10807-792: The two Hessian principalities, but also the growth of Baden and Württemberg, had split the territorial continuity of Prussia; the Prussian state was no longer linked entirely by territory, but rather was separated from many of its newer acquisitions by territories newly acquired by other states. These states often saw their own interests as conflicting generally and specifically with Prussian expansionism, and resented Prussian dominance and authority. Furthermore, these newly expanded states, usually referred as "middle-sized states" (or, in German, Mittelstaaten ), faced problems in integrating their newly acquired territories and populations into an existing political, economic and legal structure. These problems were exacerbated by European wide economic woes following
10914-418: The two sides of Prussia confirmed regional perceptions for the need for their own political and administrative units, which became an important element of the customs debate. Within "old" Prussia itself, the customs statutes from 1818 reduced domestic customs barriers. After 1818, goods coming into Prussia and leaving Prussia were charged a high tariff. Goods moved freely within the state itself. The Prussian toll
11021-417: The variation in the relationship between inputs and output . This relationship is therefore expressed in "physical" terms. But when talking about economies of scale, the relation taken into consideration is that between the average production cost and the dimension of scale. Economies of scale therefore are affected by variations in input prices. If input prices remain the same as their quantities purchased by
11128-556: The variation or constancy of returns. In 1947, DuPont engineer Roger Williams, Jr. (1930-2005) published a rule of thumb that costs of chemical process are roughly proportional to the tonnage in power ~0.6 . In the following decades it became widely adopted other engineering industries and terrestrial mining, sometimes (e. g., in electrical power generation) with modified exponential scaling factors. It has been noted that in many industrial sectors there are numerous companies with different sizes and organizational structures, despite
11235-648: The viability of Junker producers in east Prussia, and limited their access to external markets. The commercial reform efforts sponsored by Bavaria in 1856 led to the General German Commercial Code in 1861 that was quickly approved by a majority of the confederation. It proved highly successful in reducing barriers and increasing trade. At the close of the Napoleonic Wars, Germany was made up of 39 states, among them four city-states. Having abolished its own internal tariffs in 1818, Prussia began inviting individual states to eliminate tariffs, with
11342-647: Was also called the Principal Conclusion of the Extraordinary Imperial Delegation (or, in German, Hauptschluss der außerordentlichen Reichsdeputation , usually called the Reichsdeputationshauptschluss ). This last piece of major legislation enacted by the Holy Roman Empire re-arranged the map of Central Europe, especially in the southwestern territories. The Reichshauptschluss resulted in
11449-402: Was therefore very simple and efficient. Manufactured goods were heavily taxed, especially textiles, and the most important taxes were for food, necessities and luxury goods. Similarly, in the southwest German states, it became urgent to integrate the newly acquired territories into the states' existing economic systems. The territorial growth of the southwestern middle-sized states, in particular
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