258 THE GENERAL THEORY OF EMPLOYMENT bk. v

In its crudest form, this is tantamount to assumingthat the reduction in money-wages will leave demandunaffected. There may be some economists whowould maintain that there is no reason why demandshould be affected, arguing that aggregate demanddepends on the quantity of money multiplied by theincome-velocity of money and that there is no obviousreason why a reduction in money-wages would reduceeither the quantity of money or its income-velocity.Or they may even argue that profits will necessarily goup because wages have gone down. But it would, Ithink, be more usual to agree that the reduction inmoney-wages may have some effect on aggregate de-mand through its reducing the purchasing power ofsome of the workers, but that the real demand of otherfactors, whose money incomes have not been reduced,will be stimulated by the fall in prices, and that theaggregate demand of the workers themselves will bevery likely increased as a result of the increased volumeof employment, unless the elasticity of demand forlabour in response to changes in money-wages is lessthan unity. Thus in the new equilibrium there willbe more employment than there would have beenotherwise except, perhaps, in some unusual limitingcase which has no reality in practice.

It is from this type of analysis that I fundamentallydiffer; or rather from the analysis which seems to liebehind such observations as the above. For whilstthe above fairly represents, I think, the way in whichmany economists talk and write, the underlying analysishas seldom been written down in detail.

It appears, however, that this way of thinking isprobably reached as follows. In any given industrywe have a demand schedule for the product relating thequantities which can be sold to the prices asked; wehave a series of supply schedules relating the priceswhich will be asked for the sale of different quantitieson various bases of cost; and these schedules between