26 THE GENERAL THEORY OF EMPLOYMENT BK. I

must mean that ƒ(N) and ϕ(N) are equal for all valuesof N, i.e. for all levels of output and employment; andthat when there is an increase in Z( =ϕ(N)) correspond-ing to an increase in N, D( = ƒ(N)) necessarily increasesby the same amount as Z. The classical theoryassumes, in other words, that the aggregate demandprice (or proceeds) always accommodates itself to theaggregate supply price; so that, whatever the value ofN may be, the proceeds D assume a value equal to theaggregate supply price Z which corresponds to N.That is to say, effective demand, instead of having aunique equilibrium value, is an infinite range of valuesall equally admissible; and the amount of employmentis indeterminate except in so far as the marginal dis-utility of labour sets an upper limit.

if this were true, competition between entre-preneurs would always lead to an expansion of employ-ment up to the point at which the supply of outputas a whole ceases to be elastic, i.e. where a further in-crease in the value of the effective demand will nolonger be accompanied by any increase in output.Evidently this amounts to the same thing as full em-ployment. In the previous chapter we have given adefinition of full employment in terms of the behaviourof labour. An alternative, though equivalent, criterionis that at which we have now arrived, namely a situa-tion in which aggregate employment is inelastic inresponse to an increase in the effective demand for itsoutput. Thus Say’s law, that the aggregate demandprice of output as a whole is equal to its aggregatesupply price for all volumes of output, is equivalent tothe proposition that there is no obstacle to full em-ployment. If, however, this is not the true law relatingthe aggregate demand and supply functions, there is avitally important chapter of economic theory which re-mains to be written and without which all discussionsconcerning the volume of aggregate employment arefutile.