CH. 2 POSTULATES OF THE CLASSICAL ECONOMICS 13

to a rise in prices, with money-wages unaltered, doesnot, as a rule, cause the supply of available labour onoffer at the current wage to fall below the amountactually employed prior to the rise of prices. Tosuppose that it does is to suppose that all those whoare now unemployed though willing to work at thecurrent wage will withdraw the offer of their labour inthe event of even a small rise in the cost of living. Yetthis strange supposition apparently underlies ProfessorPigou’s Theory of Unemployment,1 and it is what allmembers of the orthodox school are tacitly assuming.

But the other, more fundamental, objection, whichwe shall develop in the ensuing chapters, flows fromour disputing the assumption that the general level ofreal wages is directly determined by the character ofthe wage bargain. In assuming that the wage bargaindetermines the real wage the classical school have sliptin an illicit assumption. For there may be no methodavailable to labour as a whole whereby it can bring thewage-goods equivalent of the general level of money-wages into conformity with the marginal disutility ofthe current volume of employment. There may existno expedient by which labour as a whole can reduce itsreal wage to a given figure by making revised moneybargains with the entrepreneurs. This will be ourcontention. We shall endeavour to show that primarilyit is certain other forces which determine the generallevel of real wages. The attempt to elucidate thisproblem will be one of our main themes. We shallargue that there has been a fundamental misunder-standing of how in this respect the economy in whichwe live actually works.

III

Though the struggle over money-wages betweenindividuals and groups is often believed to determine

1 Cf. Chapter 19, Appendix.