ch. 19 CHANGES IN MONEY-WAGES 269

it can only be an inexperienced person who wouldprefer the former.

(iv) If a sagging rate of interest has to be broughtabout by a sagging wage-level, there is, for the reasonsgiven above, a double drag on the marginal efficiency ofcapital and a double reason for putting off investmentand thus postponing recovery.

hi

It follows, therefore, that if labour were to respondto conditions of gradually diminishing employment byoffering its services at a gradually diminishing money-wage, this would not, as a rule, have the effect of re-ducing real wages and might even have the effect ofincreasing them, through its adverse influence on thevolume of output. The chief result of this policywould be to cause a great instability of prices, so violentperhaps as to make business calculations futile in aneconomic society functioning after the manner of thatin which we live. To suppose that a flexible wagepolicy is a right and proper adjunct of a system whichon the whole is one of laissez-faire , is the opposite ofthe truth. It is only in a highly authoritarian society,where sudden, substantial, all-round changes could bedecreed that a flexible wage-policy could function withsuccess. One can imagine it in operation in Italy ,Germany or Russia, but not in France, the UnitedStates or Great Britain .

If, as in Australia , an attempt were made to fix realwages by legislation, then there would be a certain levelof employment corresponding to that level of real wages;and the actual level of employment would, in a closedsystem, oscillate violently between that level and noemployment at all, according as the rate of investmentwas or was not below the rate compatible with thatlevel; whilst prices would be in unstable equilibriumwhen investment was at the critical level, racing to zero