302 THE GENERAL THEORY OF EMPLOYMENT bk. v

which ensues on an increase in effective demand incircumstances of full employment. They have, more-over, a good deal of historical importance. But theydo not readily lend themselves to theoretical general-isations.

(5) Our first simplification consisted in assumingthat the remunerations of the various factors enteringinto marginal cost all change in the same proportion.But in fact the rates of remuneration of different factorsin terms of money will show varying degrees of rigidityand they may also have different elasticities of supplyin response to changes in the money-rewards offered.If it were not for this, we could say that the price-levelis compounded of two factors, the wage-unit and thequantity of employment.

Perhaps the most important element in marginalcost which is likely to change in a different proportionfrom the wage-unit, and also to fluctuate within muchwider limits, is marginal user cost. For marginal usercost may increase sharply when employment beginsto improve, if (as will probably be the case) the in-creasing effective demand brings a rapid change in theprevailing expectation as to the date when the replace-ment of equipment will be necessary.

Whilst it is for many purposes a very useful firstapproximation to assume that the rewards of all thefactors entering into marginal prime-cost change inthe same proportion as the wage-unit, it might be better,perhaps, to take a weighted average of the rewards ofthe factors entering into marginal prime-cost, and callthis the cost-unit. The cost-unit, or, subject to the aboveapproximation, the wage-unit, can thus be regarded asthe essential standard of value; and the price-level,given the state of technique and equipment, will dependpartly on the cost-unit and partly on the scale of output,increasing, where output increases, more than in pro-portion to any increase in the cost-unit, in accordancewith the principle of diminishing returns in the short