266 THE GENERAL THEORY OF EMPLOYMENT bk. v

stitutions of the contemporary world it is more ex-pedient to aim at a rigid money-wage policy than at aflexible policy responding by easy stages to changes inthe amount of unemployment;—so far, that is to say,as the marginal efficiency of capital is concerned. Butis this conclusion upset when we turn to the rate ofinterest?

It is, therefore, on the effect of a falling wage- andprice-level on the demand for money that those whobelieve in the self-adjusting quality of the economicsystem must rest the weight of their argument; thoughI am not aware that they have done so. If the quantityof money is itself a function of the wage- and price-level, there is indeed, nothing to hope in this direction.But if the quantity of money is virtually fixed, it isevident that its quantity in terms of wage-units can beindefinitely increased by a sufficient reduction inmoney-wages; and that its quantity in proportion toincomes generally can be largely increased, the limitto this increase depending on the proportion of wage-cost to marginal prime cost and on the response ofother elements of marginal prime cost to the fallingwage-unit.

We can, therefore, theoretically at least, produceprecisely the same effects on the rate of interest byreducing wages, whilst leaving the quantity of moneyunchanged, that we can produce by increasing thequantity of money whilst leaving the level of wagesunchanged. It follows that wage reductions, as amethod of securing full employment, are also subjectto the same limitations as the method of increasing thequantity or money. The same reasons as those men-tioned above, which limit the efficacy of increases inthe quantity of money as a means of increasing invest-ment to the optimum figure, apply mutatis mutandisto wage reductions. Just as a moderate increase - inthe quantity of money may exert an inadequate in-fluence over the long-term rate of interest, whilst an