296 THE GENERAL THEORY OF EMPLOYMENT bk. v

be enunciated as follows: “So long as there is unem-ployment, employment will change in the same propor-tion as the quantity of money; and when there is fullemployment, prices will change in the same proportionas the quantity of money”.

Having, however, satisfied tradition by introducinga sufficient number of simplifying assumptions toenable us to enunciate a Quantity Theory of Money,let us now consider the possible complications whichwill in fact influence events:

(1) Effective demand will not change in exact pro-portion to the quantity of money.

(2) Since resources are not homogeneous, there willbe diminishing, and not constant, returns as employ-ment gradually increases.

(3) Since resources are not interchangeable, somecommodities will reach a condition of inelastic supplywhilst there are still unemployed resources availablefor the production of other commodities.

(4) The wage-unit will tend to rise, before fullemployment has been reached.

(5) The remunerations of the factors entering intomarginal cost will not all change in the same proportion.

Thus we must first consider the effect of changes inthe quantity of money on the quantity of effectivedemand; and the increase in effective demand will,generally speaking, spend itself partly in increasingthe quantity of employment and partly in raising thelevel of prices. Thus instead of constant prices inconditions of unemployment, and of prices rising inproportion to the quantity of money in conditions offull employment, we have in fact a condition of pricesrising gradually as employment increases. The Theoryof Prices, that is to say, the analysis of the relation be-tween changes in the quantity of money and changesin the price-level with a view to determining the elas-ticity of prices in response to changes in the quantityof money, must, therefore, direct itself to the five