180 THE GENERAL THEORY OF EMPLOYMENT BK. IV

complicated assumption providing for an automaticchange in the wage-unit of an amount just sufficientin its effect on liquidity-preference to establish a rateof interest which would just offset the supposed shift,so as to leave output at the same level as before. Infact, there is no hint to be found in the above writersas to the necessity for any such assumption; at the bestit would be plausible only in relation to long-periodequilibrium and could not form the basis of a short-period theory; and there is no ground for supposing itto hold even in the long-period. In truth, the classicaltheory has not been alive to the relevance of changesin the level of income or to the possibility of the level ofincome being actually a function of the rate of theinvestment.

The above can be illustrated by a diagram 1 as follows:

In this diagram the amount of investment (orsaving) I is measured vertically, and the rate of interestr horizontally. X1X1´ is the first position of the in-vestment demand-schedule, and X2X2´ is a secondposition of this curve. The curve Y1 relates the

1 This diagram was suggested to me by Mr. R. F. Harrod. Cf. also apartly similar schematism by Mr. D. H. Robertson, Economic Journal,December 1934, p. 652.