CH. 20

THE EMPLOYMENT FUNCTION

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These considerations are particularly important ifwe are concerned with short-period phenomena in thesense of changes in the amount or direction of demandwhich are not foreseen some time ahead. Some pro-ducts take time to produce, so that it is practically im-possible to increase the supply of them quickly. Thus,if additional demand is directed to them without notice,they will show a low elasticity of employment; althoughit may be that, given sufficient notice, their elasticityof employment approaches unity.

It is in this connection that I find the principalsignificance of the conception of a period of production.A product, I should prefer to say , 1 has a period of pro-duction n if n time-units of notice of changes in thedemand for it have to be given if it is to offer itsmaximum elasticity of employment. Obviously con-sumption-goods, taken as a whole, have in this sensethe longest period of production, since of every pro-ductive process they constitute the last stage. Thusif the first impulse towards the increase in effectivedemand comes from an increase in consumption, theinitial elasticity of employment will be further belowits eventual equilibrium-level than if the impulse comesfrom an increase in investment. Moreover, if the in-creased demand is directed to products with a relativelylow elasticity of employment, a larger proportion of itwill go to swell the incomes of entrepreneurs and asmaller proportion to swell the incomes of wage-earnersand other prime-cost factors; with the possible resultthat the repercussions may be somewhat less favourableto expenditure, owing to the likelihood of entrepreneurssaving more of their increment of income than wage-earners would. Nevertheless the distinction betweenthe two cases must not be over-stated, since a largepart of the reactions will be much the same in both . 2

1 This is not identical with the usual definition, but it seems to me toembody what is significant in the idea.

2 Some further discussion of the above topic is to be found in myTreatise on Money, Book IV.