THE GENERAL THEORY OF EMPLOYMENT bk. v

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tions to this conclusion which must be borne in mindin applying it to an actual case:

(1) For a time at least, rising prices may deludeentrepreneurs into increasing employment beyond thelevel which maximises their individual profits measuredin terms of the product. For they are so accustomedto regard rising sale-proceeds in terms of money as asignal for expanding production, that they may con-tinue to do so when this policy has in fact ceased to beto their best advantage; i.e. they may underestimatetheir marginal user cost in the new price environment.

(2) Since that part of his profit which the entre-preneur has to hand on to the rentier is fixed in terms ofmoney, rising prices, even though unaccompanied byany change in output, will re-distribute incomes to theadvantage of the entrepreneur and to the disadvantageof the rentier, which may have a reaction on the pro-pensity to consume. This, however, is not a processwhich will have only begun when full employment hasbeen attained;—it will have been making steady pro-gress all the time that the expenditure was increasing.If the rentier is less prone to spend than the entre-preneur, the gradual withdrawal of real income fromthe former will mean that full employment will bereached with a smaller increase in the quantity of moneyand a smaller reduction in the rate of interest than willbe the case if the opposite hypothesis holds. Afterfull employment has been reached, a further rise ofprices will, if the first hypothesis continues to hold,mean that the rate of interest will have to rise somewhatto prevent prices from rising indefinitely, and that theincrease in the quantity of money will be less than inproportion to the increase in expenditure; whilst if thesecond hypothesis holds, the opposite will be the case.It may be that, as the real income of the rentier isdiminished, a point will come when, as a result of hisgrowing relative impoverishment, there will be a change-over from the first hypothesis to the second, which