26o THE GENERAL THEORY OF EMPLOYMENT bk. V

reduced in full proportion to the reduction in money-wages ( i.e . which is somewhat greater measured inwage-units). But if the classical theory is not allowedto extend by analogy its conclusions in respect of aparticular industry to industry as a whole, it is whollyunable to answer the question what effect on employ-ment a reduction in money-wages will have. For ithas no method of analysis wherewith to tackle theproblem. Professor Pigou’s Theory of Unemploymentseems to me to get out of the Classical Theory all thatcan be got out of it; with the result that the bookbecomes a striking demonstration that this theory hasnothing to offer, when it is applied to the problem ofwhat determines the volume of actual employment asa whole . 1

ii

Let us, then, apply our own method of analysis toanswering the problem. It falls into two parts, (i)Does a reduction in money-wages have a direct tend-ency, cet.par ., to increase employment, “ cet.par .” beingtaken to mean that the propensity to consume, theschedule of the marginal efficiency of capital and the rateof interest are the same as before for the community asa whole? And (2) does a reduction in money-wageshave a certain or probable tendency to affect employ-ment in a particular direction through its certain orprobable repercussions on these three factors?

The first question we have already answered in thenegative in the preceding chapters. For we haveshown that the volume of employment is uniquelycorrelated with the volume of effective demand measuredin wage-units, and that the effective demand, being thesum of the expected consumption and the expectedinvestment, cannot change, if the propensity to con-sume, the schedule of marginal efficiency of capital and

1 In an appendix to this chapter Professor Pigou’s Theory of Unemploy-ment is criticised in detail.