278 THE GENERAL THEORY OF EMPLOYMENT bk. v

and the demand function for labour) will be very simple. Therewill always be at work a strong tendency for wage-rates to be sorelated to demand that everybody is employed. Hence, in stableconditions everyone will actually be employed. The implicationis that such unemployment as exists at any time is due whollyto the fact that changes in demand conditions are continuallytaking place and that frictional resistances prevent the appropri-ate wage adjustments from being made instantaneously.” 1

He concludes {op. cit. p. 253) that unemployment is primarilydue to a wage policy which fails to adjust itself sufficiently tochanges in the real demand function for labour.

Thus Professor Pigou believes that in the long run unemploy-ment can be cured by wage adjustments; 2 whereas I maintainthat the real wage (subject only to a minimum set by the marginaldisutility of employment) is not primarily determined by “wageadjustments” (though these may have repercussions) but by theother forces of the system, some of which (in particular therelation between the schedule of the marginal efficiency ofcapital and the rate of interest) Professor Pigou has failed, if Iam right, to include in his formal scheme.

Finally, when Professor Pigou comes to the “Causation ofUnemployment” he speaks, it is true, of fluctuations in the stateof demand, much as I do. But he identifies the state ofdemand with the Real Demand Function for Labour, forget-ful of how narrow a thing the latter is on his definition. Forthe Real Demand Function for Labour depends by definition(as we have seen above) on nothing but two factors, namely(1) the relationship in any given environment between thetotal number of men employed and the number who have tobe employed in the wage-goods industries to provide them withwhat they consume, and (2) the state of marginal productivity inthe wage-goods industries. Yet in Part V. of his Theory of Un-employment fluctuations in the state of “the real demand forlabour” are given a position of importance. The “real demandfor labour” is regarded as a factor which is susceptible of wideshort-period fluctuations {op. cit. Part V. chaps, vi.-xii.), and thesuggestion seems to be that swings in “the real demand forlabour” are, in combination with the failure of wage policy torespond sensitively to such changes, largely responsible for thetrade cycle. To the reader all this seems, at first, reasonable

1 Op. cit. p. 252.

2 There is no hint or suggestion that this comes about through reactionson the rate of interest.