CH. 13 THE GENERAL THEORY OF INTEREST 173

III

We have now introduced money into our causalnexus for the first time, and we are able to catch a firstglimpse of the way in which changes in the quantity ofmoney work their way into the economic system. If,however, we are tempted to assert that money is thedrink which stimulates the system to activity, we mustremind ourselves that there may be several slips be-tween the cup and the lip. For whilst an increase in thequantity of money may be expected, cet. par., to reducethe rate of interest, this will not happen if the liquidity-preferences of the public are increasing more than thequantity of money; and whilst a decline in the rate ofinterest maybe expected, cet. par., to increase the volumeof investment, this will not happen if the schedule ofthe marginal efficiency of capital is falling more rapidlythan the rate of interest; and whilst an increase in thevolume of investment may be expected, cet. par., toincrease employment, this may not happen if thepropensity to consume is falling off. Finally, ifemployment increases, prices will rise in a degreepartly governed by the shapes of the physical supplyfunctions, and partly by the liability of the wage-unitto rise in terms of money. And when output hasincreased and prices have risen, the effect of this onliquidity-preference will be to increase the quantity ofmoney necessary to maintain a given rate of interest.

IV

Whilst liquidity-preference due to the speculative-motive corresponds to what in my Treatise on Money Icalled “the state of bearishness”, it is by no means thesame thing. For “bearishness” is there defined as thefunctional relationship, not between the rate of interest(or price of debts) and the quantity of money, butbetween the price of assets and debts, taken together,