18 THE GENERAL THEORY OF EMPLOYMENT BK. I

sarily diminishes as employment is increased. So long,indeed, as this proposition holds, any means of increas-ing employment must lead at the same time to adiminution of the marginal product and hence of therate of wages measured in terms of this product.

But when we have thrown over the second postulate,a decline in employment, although necessarily associatedwith labour’s receiving a wage equal in value to a largerquantity of wage-goods, is not necessarily due tolabour’s demanding a larger quantity of wage-goods;and a willingness on the part of labour to accept lowermoney-wages is not necessarily a remedy for unemploy-ment. The Theory of Wages in relation to employ-ment, to which we are here leading up, cannot be fullyelucidated, however, until Chapter 19 and its appendixhave been reached.

VI

From the time of Say and Ricardo the classical econ-omists have taught that supply creates its own demand;—meaning by this in some significant, but not clearlydefined, sense that the whole of the costs of productionmust necessarily be spent in the aggregate, directly orindirectly, on purchasing the product.

In J. S. Mill’s Principles of Political Economy thedoctrine is expressly set forth:

What constitutes the means of payment for commoditiesis simply commodities. Each person’s means of paying forthe productions of other people consist of those which hehimself possesses. All sellers are inevitably, and by the mean-ing of the word, buyers. Could we suddenly double theproductive powers of the country, we should double thesupply of commodities in every market; but we should, bythe same stroke, double the purchasing power. Everybodywould bring a double demand as well as supply; everybodywould be able to buy twice as much, because every one wouldhave twice as much to offer in exchange .1

1 Principles of Political Economy, Book III. chap. xiv. § 2.