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A TREATISE ON MONEY

BE. Ill

production when it is a question of a movementdownwards.

In pre-war days no one troubled much about any-thing but the condition of external equilibrium. Butsince the War the progress of ideas about MonetaryManagement and the importance of stabilising thePurchasing Power of Money have led to a moregeneral concern about the preservation of internalequilibrium, without its being clearly realised howfar the one is compatible with the other. This,however, is a matter of which we must postponethe further discussion to the later chapters of thisTreatise.

(vii.) Changes in Price-Levels due to“Spontaneous” Changes in Earnings

We have assumed in previous sections that ratesof efficiency-earnings do not, as a rule, change “ spon-taneously ” so to speak, but only as a result of achange in the offers made by entrepreneurs actingunder the influence of profits or losses. But this isnot the whole of the truth and we must now supple-ment it.

If money-rates of earnings were uniformly fixed inrelation to output, being as it were piece-wages, sothat they tended to increase or decrease automaticallywith every change in the coefficient of efficiency, thenwe should need to add nothing to what we have writtenabove about the causation of price changes.

If, on the other hand, money-rates of earningswere uniformly fixed in relation to effort,, being as itwere time-wages, so that they tended to remain thesame irrespective of changes in the coefficient ofefficiency, then the price-level would change (assum-ing Investment and Saving to be in equilibrium) withevery change in efficiency and in inverse proportionto such change. That is to say, there would be a