You absolutely can make a smaller engine and say it will get better fuel economy.
If you look at an efficiency map of the engine, large naturally aspirated engines operate pretty far off the sweet spot under light load of normal driving. Smaller the engine the closer you can get to the lowest brake specific fuel consumption. This is principal behind the cylinder deactivation on the various v-8's, they improve the engine efficiency at low hp requirements by increasing the operating pressures/temperatures in the remaining cylinders. Even while suffering the friction loss of spinning 4 dead cylinders around it still improves efficiency.
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Today's Featured Article - Restoration Story: Fordson Major - by Anthony West. George bought his Fordson Major from a an implement sale about 18 years ago for £200.00 (UK). There is no known history regarding its origins or what service it had done, but the following work was undertaken alone to bring it up to show standard. From the engine number, it was found that this Major was produced late 1946. It was almost complete but had various parts that would definitely need replacing.
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