270 THE GENERAL THEORY OF EMPLOYMENT bk. v

whenever investment was below it, and to infinity when-ever it was above it. The element of stability wouldhave to be found, if at all, in the factors controlling thequantity of money being so determined that therealways existed some level of money-wages at which thequantity of money would be such as to establish arelation between the rate of interest and the marginalefficiency of capital which would maintain investmentat the critical level. In this event employment wouldbe constant (at the level appropriate to the legal realwage) with money-wages and prices fluctuating rapidlyin the degree just necessary to maintain this rate ofinvestment at the appropriate figure. In the actualcase of Australia , the escape was found, partly of coursein the inevitable inefficacy of the legislation to achieveits object, and partly in Australia not being a closedsystem, so that the ievel of money-wages was itself adeterminant of the level of foreign investment and henceof total investment, whilst the terms of trade were animportant influence on real wages.

In the light of these considerations I am now of theopinion that the maintenance of a stable general levelof money-wages is, on a balance of considerations, themost advisable policy for a closed system; whilst thesame conclusion will hold good for an open system,provided that equilibrium with the rest of the worldcan be secured by means of fluctuating exchanges.There are advantages in some degree of flexibility inthe wages of particular industries so as to expeditetransfers from those which are relatively declining tothose which are relatively expanding. But the money-wage level as a whole should be maintained as stable aspossible, at any rate in the short period.

This policy will result in a fair degree of stability inthe price-level;—greater stability, at least, than with aflexible wage policy. Apart from “administered” ormonopoly prices, the price-level will only change in theshort period in response to the extent that changes in