CH. 19
CHANGES IN MONEY-WAGES
261
the rate of interest are all unchanged. If, without anychange in these factors, the entrepreneurs were toincrease employment as a whole, their proceeds willnecessarily fall short of their supply-price.
Perhaps it will help to rebut the crude conclusionthat a reduction in money-wages will increase employ-ment “because it reduces the cost of production”, ifwe follow up the course of events on the hypothesismost favourable to this view, namely that at the outsetentrepreneurs expect the reduction in money-wages tohave this effect. It is indeed not unlikely that theindividual entrepreneur, seeing his own costs reduced,will overlook at the outset the repercussions on thedemand for his product and will act on the assumptionthat he will be able to sell at a profit a larger output thanbefore. If, then, entrepreneurs generally act on thisexpectation, will they in fact succeed in increasing theirprofits? Only if the community’s marginal propensityto consume is equal to unity, so that there is no gapbetween the increment of income and the increment ofconsumption; or if there is an increase in investment,corresponding to the gap between the increment ofincome and the increment of consumption, which willonly occur if the schedule of marginal efficiencies ofcapital has increased relatively to the rate of interest.Thus the proceeds realised from the increased outputwill disappoint the entrepreneurs and employment willfall back again to its previous figure, unless the marginalpropensity to consume is equal to unity or the reductionin money-wages has had the effect of increasing theschedule of marginal efficiencies of capital relativelyto the rate of interest and hence the amount of invest-ment. For if entrepreneurs offer employment on ascale which, if they could sell their output at the ex-pected price, would provide the public with incomesout of which they would save more than the amount ofcurrent investment, entrepreneurs are bound to makea loss equal to the difference; and this will be the case