232 THE GENERAL THEORY OF EMPLOYMENT bk. iv

elusions are upset by the fact that, even though thequantity of money cannot be increased by divertinglabour into producing it, nevertheless an assumptionthat its effective supply is rigidly fixed would beinaccurate. In particular, a reduction of the wage-unitwill release cash from its other uses for the satisfactionof the liquidity-motive; whilst, in addition to this, asmoney-values fall, the stock of money will bear ahigher proportion to the total wealth of the community.

It is not possible to dispute on purely theoreticalgrounds that this reaction might be capable of allowingan adequate decline in the money-rate of interest. Thereare, however, several reasons, which taken in combina-tion are of compelling force, why in an economy of thetype to which we are accustomed it is very probablethat the money-rate of interest will often prove reluctantto decline adequately:

(a) We have to allow, first of all, for the reactionsof a fall in the wage-unit on the marginal efficiencies ofother assets in terms of money;—for it is the differencebetween these and the money-rate of interest withwhich we are concerned. If the effect of the fall in thewage-unit is to produce an expectation that it will sub-sequently rise again, the result will be wholly favour-able. if, on the contrary, the effect is to produce anexpectation of a further fall, the reaction on the marginalefficiency of capital may offset the decline in the rate ofinterest . 1

( b ) The fact that wages tend to be sticky in terms ofmoney, the money-wage being more stable than the realwage, tends to limit the readiness of the wage-unit tofall in terms of money. Moreover, if this were not so,the position might be worse rather than better; because,if money-wages were to fall easily, this might often tendto create an expectation of a further fall with unfavour-able reactions on the marginal efficiency of capital.

1 This is a matter which will be examined in greater detail in Chapter 19below.