264 THE GENERAL THEORY OF EMPLOYMENT bk. v

over, the reduction in wages disturbs political confidenceby causing popular discontent, the increase in liquidity-preference due to this cause may more than offset therelease of cash from the active circulation.

(6) Since a special reduction of money-wages isalways advantageous to an individual entrepreneur orindustry, a general reduction (though its actual effectsare different) may also produce an optimistic tone inthe minds of entrepreneurs, which may break througha vicious circle of unduly pessimistic estimates of themarginal efficiency of capital and set things movingagain on a more normal basis of expectation. On theother hand, if the workers make the same mistake astheir employers about the effects of a general reduction,labour troubles may offset this favourable factor; apartfrom which, since there is, as a rule, no means of secur-ing a simultaneous and equal reduction of money-wagesin all industries, it is in the interest of all workers toresist a reduction in their own particular case. In fact,a movement by employers to revise money-wage bar-gains downward will be much more strongly resistedthan a gradual and automatic lowering of real wagesas a result of rising prices.

(7) On the other hand, the depressing influence onentrepreneurs of their greater burden of debt maypartly offset any cheerful reactions from the reductionof wages. Indeed if the fall of wages and prices goesfar, the embarrassment of those entrepreneurs who areheavily indebted may soon reach the point of insolvency,—with severely adverse effects on investment. More-over the effect of the lower price-level on the real burdenof the National Debt and hence on taxation is likely toprove very adverse to business confidence.

This is not a complete catalogue of all the possiblereactions of wage reductions in the complex real world.But the above cover, I think, those which are usuallythe most important.

If, therefore, we restrict our argument to the case