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The practice of optimizing types for different sizes to produce the best result is most often called "optical scaling." These subtle alterations to glyph shapes depending on the physical size. The most important such change is a thickening of thin strokes at small sizes which reduces the stroke contrast. Other common adjustments to smaller sizes include a slight widening, opening up of the letterspace, increase of the x-height, and making counters and apertures wider.
In the days of metal, all fonts were effectively optically scaled. Before the late 19th century, a punchcutter needed to sculpt each individual size separately, an extremely labor-intensive process. Linn Boyd Benton's pantograph changed that, allowing a full range of sizes to be engraved from a single pattern plate. This turned out to be merely the first of many technological changes that had the potential to eliminate optical scaling, as it was now feasible to produce smaller fonts that were simply mathematical replicas of larger ones.
However, the Bentons did not fall for this temptation, and worked out an ingenious system of adjustments for implementing optical scaling during the pantographic engraving process. The Benton matrix engraver had the ability to do anamorphic scaling, which was used to extend smaller sizes. More importantly, by controlling the relative sizes of the "follower" used to trace the pattern plate and the engraving tool used to cut the matrix, a stroke offset could be added or subtracted from the original outline.
Thus, the Bentons were able to automate nearly all of the task of producing optically scaled fonts. They can perhaps be credited with pioneering the use of steam-powered "computational geometry". However, the other major approach to optical scaling was to create different pattern plates for different ranges of sizes. Stempel is reported to have used a standard three pattern plates, and analysis of Monotype fonts shows three or four to be typical. Of course, it is also possible to combine these two techniques, as was done for the ATF Garamonds. This font used two pattern plates, one for text sizes to 12pts, one for display sizes 14pts and over, and used Benton optical scaling for the adjustments within the range.
The advent of photocomposition dealt a serious blow to optical scaling. Being based on photographic magnification, the only way to acheive optical scaling would have been to provide a diversity of glyph shapes on "photomats". The labor-saving and somewhat crude esthetic of those days did foster the development of any optical scaling technology for phototype.
Digital typography brought the potential for infinitely more flexibility, and while some early digital font technologies such as Metafont did implement optical scaling, the mainstream faithfully duplicated the limitations of phototype. Neither basic TrueType nor Type 1 font technologies have support for optical scaling. Many attempts have been made to add optical scaling, including with Multiple Master fonts containing an "optical size" axis to complement the standard axes of weight and width. Unfortunately, Multiple Master has failed to become popular, and today its main use is as an in-house design aid.
Even so, it has always been possible to fake optical scaling with phototype and its simpleminded digital successors, simply by choosing a different font for different sizes. Indeed, even in the metal days one can imagine, for example, that Michelangelo is a design optimized to blend seamlessly at larger sizes with Palatino text. For example, in 1990 ITC Bodoni was released in sizes of Six, Twelve, and Seventy-Two. Today, with a resurgence of interest in fine typography, an increasing number of fonts are sold in optically scaled sets. The most prolific foundry is Adobe's Opticals series, with Robert Slimbach's Garamond Premier Pro as a monumental example.
Of special note is Sumner Stone's Cycles, which is one of the few modern examples of a font carefully crafted at each of the optical sizes. Monotype is also updating their library of classic fonts with some specific sizes, notably Bembo Book.
The future of optical scaling is bright. The OpenType font format has a "feature" identifying the intended size range of a font, and sophisticated typesetting applications will no doubt use this feature to automatically select glyph shapes for the intended size. (Note to future editors: check if InDesisgn CS2 has this capability; CS1 did not). The interest in fine typography, the effectively unlimited computing power available today, and the careful study of optical scaling techniques of the past, will all serve to motivate better tools, and of course more and more good optically scaled fonts.