CH. 21

THE THEORY OF PRICES

309

so unacceptable to wealth-owners that it cannot bereadily established merely by manipulating the quantityof money. So long as a tolerable level of employmentcould be attained on the average of one or two or threedecades merely by assuring an adequate supply ofmoney in terms of wage-units, even the nineteenthcentury could find a way. If this was our only problemnow—if a sufficient degree of devaluation is all weneed—we, to-day, would certainly find a way.

But the most stable, and the least easily shifted,element in our contemporary economy has been hither-to, and may prove to be in future, the minimum rateof interest acceptable to the generality of wealth-owners. 1 If a tolerable level of employment requires arate of interest much below the average rates whichruled in the nineteenth century, it is most doubtfulwhether it can be achieved merely by manipulating thequantity of money. From the percentage gain, whichthe schedule of marginal efficiency of capital allows theborrower to expect to earn, there has to be deducted

(1) the cost of bringing borrowers and lenders together,

(2) income and sur-taxes and (3) the allowance whichthe lender requires to cover his risk and uncertainty,before we arrive at the net yield available to tempt thewealth-owner to sacrifice his liquidity. If, in condi-tions of tolerable average employment, this net yieldturns out to be infinitesimal, time-honoured methodsmay prove unavailing.

To return to our immediate subject, the long-runrelationship between the national income and thequantity of money will depend on liquidity-preferences.And the long-run stability or instability of prices willdepend on the strength of the upward trend of the wage-unit (or, more precisely, of the cost-unit) comparedwith the rate of increase in the efficiency of the pro-ductive system.

1 Cf. the nineteenth-century saying, quoted by Bagehot, that “John Bullcan stand many things, but he cannot stand 2 per cent.”