CH. 21

THE THEORY OF PRICES

3 01

“bottle-necks” to be reached, will spend itself in raisingprices, as distinct from employment, to a greater extentat first than subsequently.

(4) That the wage-unit may tend to rise before fullemployment has been reached, requires little commentor explanation. Since each group of workers will gain,cet. par., by a rise in its own wages, there is naturallyfor all groups a pressure in this direction, which entre-preneurs will be more ready to meet when they aredoing better business. For this reason a proportionof any increase in effective demand is likely to beabsorbed in satisfying the upward tendency of thewage-unit.

Thus, in addition to the final critical point of fullemployment at which money-wages have to rise, inresponse to an increasing effective demand in terms ofmoney, fully in proportion to the rise in the prices ofwage-goods, we have a succession of earlier semi-critical points at which an increasing effective demandtends to raise money-wages though not fully in pro-portion to the rise in the price of wage-goods; andsimilarly in the case of a decreasing effective demand.In actual experience the wage-unit does not changecontinuously in terms of money in response to everysmall change in effective demand; but discontinuously.These points of discontinuity are determined by thepsychology of the workers and by the policies ofemployers and trade unions. In an open system,where they mean a change relatively to wage-costs else-where, and in a trade cycle, where even in a closedsystem they may mean a change relatively to expectedwage-costs in the future, they can be of considerablepractical significance. These points, where a furtherincrease in effective demand in terms of money is liableto cause a discontinuous rise in the wage-unit, mightbe deemed, from a certain point of view, to be positionsof semi-inflation, having some analogy (though a veryimperfect one) to the absolute inflation ( cf . p. 303 below)