30 THE GENERAL THEORY OF EMPLOYMENT BK. I

psychological law. For it follows from this that thegreater the volume of employment the greater will bethe gap between the aggregate supply price (Z) of thecorresponding output and the sum (D1 ) which theentrepreneurs can expect to get back out of theexpenditure of consumers. Hence, if there is nochange in the propensity to consume, employmentcannot increase, unless at the same time D2 is increasingso as to fill the increasing gap between Z and D1 .Thus—except on the special assumptions of the classicaltheory according to which there is some force in opera-tion which, when employment increases, always causesD2 to increase sufficiently to fill the widening gapbetween Z and D1 —the economic system may finditself in stable equilibrium with N at a level below fullemployment, namely at the level given by the intersectionof the aggregate demand function with the aggregatesupply function.

Thus the volume of employment is not determinedby the marginal disutility of labour measured interms of real wages, except in so far as the supply oflabour available at a given real wage sets a maximumlevel to employment. The propensity to consume andthe rate of new investment determine between them thevolume of employment, and the volume of employmentis uniquely related to a given level of real wages—notthe other way round. If the propensity to consumeand the rate of new investment result in a deficienteffective demand, the actual level of employment willfall short of the supply of labour potentially availableat the existing real wage, and the equilibrium realwage will be greater than the marginal disutility of theequilibrium level of employment.

This analysis supplies us with an explanation ofthe paradox of poverty in the midst of plenty. Forthe mere existence of an insufficiency of effectivedemand may, and often will, bring the increase ofemployment to a standstill before a level of full employ-