284 THE GENERAL THEORY OF EMPLOYMENT bk. v

terms of the wage-unit. Thus the condition e 0T = imeans that <£"(N r ) = o, i.e. that there are constantreturns in response to increased employment.

Now, in so far as the classical theory assumes thatreal wages are always equal to the marginal disutilityof labour and that the latter increases when employ-ment increases, so that the labour supply will fall off,cet. par ., if real wages are reduced, it is assuming thatin practice it is impossible to increase expenditure interms of wage-units. If this were true, the conceptof elasticity of employment would have no field ofapplication. Moreover, it would, in this event, beimpossible to increase employment by increasing ex-penditure in terms of money; for money-wages wouldrise proportionately to the increased money expenditure,so that there would be no increase of expenditure interms of wage-units and consequently no increase inemployment. But if the classical assumption does nothold good, it will be possible to increase employmentby increasing expenditure in terms of money until realwages have fallen to equality with the marginal dis-utility of labour, at which point there will, by definition,be full employment.

Ordinarily, of course, e or will have a value inter-mediate between zero and unity. The extent to whichprices (in terms of wage-units) will rise, i.e. the extentto which real wages will fall, when money expenditureis increased, depends, therefore, on the elasticity of out-put in response to expenditure in terms of wage-units.

Let the elasticity of the expected price p wr in re-sponse to changes in effective demand D^, namely

dpwr D<w g e wr itten e'.dD wr p w ,

Since O r .p wr = D w , we have

dO r D„ r ^ dp wr D (OT ._

d O r d~\^) u:T pwr

^ jjr ^ or I •

or