306 THE GENERAL THEORY OF EMPLOYMENT bk. v

rate of decreasing returns as more employment isapplied to the existing equipment.

If the public hold a constant proportion of theirincome in money, e d = i; if money-wages are fixed,e w = o; if there are constant returns throughout so thatmarginal return equals average return, e e e B = I ; and ifthere is full employment either of labour or of equip-ment, e e e 0 = o.

Now e = i, if e d = I and e w = i; or if e d = i, e w = oand e t .e 0 = i; or if e d = i and e 0 = o. And obviouslythere is a variety of other special cases in which e = i.But in general e is not unity; and it is, perhaps, safe tomake the generalisation that on plausible assumptionsrelating to the real world, and excluding the case of a“flight from the currency” in which e d and e w becomelarge, e is, as a rule, less than unity.

VII

So far, we have been primarily concerned with theway in which changes in the quantity of money affectprices in the short period. But in the long run is therenot some simpler relationship?

This is a question for historical generalisation ratherthan for pure theory. If there is some tendency to ameasure of long-run uniformity in the state of liquidity-preference, there may well be some sort of rough re-lationship between the national income and the quantityof money required to satisfy liquidity-preference, takenas a mean over periods of pessimism and optimism to-gether. There may be, for example, some fairly stableproportion of the national income more than whichpeople will not readily keep in the shape of idle balancesfor long periods together, provided the rate of interestexceeds a certain psychological minimum; so that ifthe quantity of money beyond what is required in theactive circulation is in excess of this proportion of thenational income, there will be a tendency sooner or