CH. 21

THE THEORY OF PRICES

307

later for the rate of interest to fall to the neighbourhoodof this minimum. The falling rate of interest will then,cet. par., increase effective demand, and the increasingeffective demand will reach one or more of the semi-critical points at which the wage-unit will tend to showa discontinuous rise, with a corresponding effect onprices. The opposite tendencies will set in if thequantity of surplus money is an abnormally low pro-portion of the national income. Thus the net effectof fluctuations over a period of time will be to establisha mean figure in conformity with the stable proportionbetween the national income and the quantity of moneyto which the psychology of the public tends sooner orlater to revert.

These tendencies will probably work with lessfriction in the upward than in the downward direction.But if the quantity of money remains very deficient fora long time, the escape will be normally found inchanging the monetary standard or the monetary systemso as to raise the quantity of money, rather than inforcing down the wage-unit and thereby increasing theburden of debt. Thus the very long-run course ofprices has almost always been upward. For whenmoney is relatively abundant, the wage-unit rises; andwhen money is relatively scarce, some means is found toincrease the effective quantity of money.

During the nineteenth century, the growth ofpopulation and of invention, the opening-up of newlands, the state of confidence and the frequency of warover the average of (say) each decade seem to have beensufficient, taken in conjunction with the propensity toconsume, to establish a schedule of the marginalefficiency of capital which allowed a reasonably satis-factory average level of employment to be compatiblewith a rate of interest high enough to be psychologicallyacceptable to wealth-owners. There is evidence thatfor a period of almost one hundred and fifty years thelong-run typical rate of interest in the leading financial