Chapter 21
THE THEORY OF PRICES
I
So long as economists are concerned with what is called the theory of
value, they have been accustomed to teach that prices are governed by the
conditions of supply and demand; and, in particular, changes in marginal
cost and the elasticity of short-period supply have played a prominent
part. But when they pass in volume II, or more often in a separate treatise,
to the theory of money and prices, we hear no more of these homely but
intelligible concepts and move into a world where prices are governed by
the quantity of money, by its income-velocity, by the velocity of circulation
relatively to the volume of transactions, by hoarding, by forced saving,
by inflation and deflation et hoc genus omne; and little or no attempt
is made to relate these vaguer phrases to our former notions of the elasticities
of supply and demand. If we reflect on what we are being taught and try
to rationalise it, in the simpler discussions it seems that the elasticity
of supply must have become zero and demand proportional to the quantity
of money; whilst in the more sophisticated we are lost in a haze where
nothing is clear and everything is possible. We have all of us become used
to finding ourselves sometimes on the one side of the moon and sometimes
on the other, without knowing what route or journey connects them, related,
apparently, after the fashion of our waking and our dreaming lives.
One of the objects of the foregoing chapters has been to escape from
this double life and to bring the theory of prices as a whole back to close
contact with the theory of value. The division of economics between the
theory of value and distribution on the one hand and the theory of money
on the other hand is, I think, a false division. The right dichotomy is,
I suggest, between the theory of the individual industry or firm and of
the rewards and the distribution between different uses of a given quantity
of resources on the one hand, and the theory of output and employment as
a whole on the other hand. So long as we limit ourselves to the study
of the individual industry or firm on the assumption that the aggregate
quantity of employed resources is constant, and, provisionally, that the
conditions of other industries or firms are unchanged, it is true that
we are not concerned with the significant characteristics of money. But
as soon as we pass to the problem of what determines output and employment
as a whole, we require the complete theory of a monetary economy.
Or, perhaps, we might make our line of division between the theory of
stationary equilibrium and the theory of shifting equilibrium¾meaning
by the latter the theory of a system in which changing views about the
future are capable of influencing the present situation. For the importance
of money essentially flows from its being a link between the present and
the future. We can consider what distribution of resources between
different uses will be consistent with equilibrium under the influence
of normal economic motives in a world in which our views concerning the
future are fixed and reliable in all respects;¾with
a further division, perhaps, between an economy which is unchanging and
one subject to change, but where all things are foreseen from the beginning.
Or we can pass from this simplified propaedeutic to the problems of the
real world in which our previous expectations are liable to disappointment and expectations concerning the future affect what we do to-day.
It is when we have made this transition that the peculiar properties of
money as a link between the present and the future must enter into our
calculations. But, although the theory of shifting equilibrium must necessarily
be pursued in terms of a monetary economy, it remains a theory of value
and distribution and not a separate 'theory of money'. Money in its significant
attributes is, above all, a subtle device for linking the present to the
future; and we cannot even begin to discuss the effect of changing expectations
on current activities except in monetary terms. We cannot get rid of money
even by abolishing gold and silver and legal tender instruments. So long
as there exists any durable asset, it is capable of possessing monetary
attributes and, therefore, of giving rise to the characteristic problems of a monetary
economy.
II
In a single industry its particular price-level depends partly on the
rate of remuneration of the factors of production which enter into its
marginal cost, and partly on the scale of output. There is no reason to
modify this conclusion when we pass to industry as a whole. The general
price-level depends partly on the rate of remuneration of the factors of
production which enter into marginal cost and partly on the scale of output
as a whole, i.e. (taking equipment and technique as given) on the volume
of employment. It is true that, when we pass to output as a whole, the
costs of production in any industry partly depend on the output of other
industries. But the more significant change, of which we have to take account,
is the effect of changes in demand
both on costs and on volume.
It is on the side of demand that we have to introduce quite new ideas when
we are dealing with demand as a whole and no longer with the demand for a single product taken in isolation, with
demand as a whole assumed to be unchanged.
III
If we allow ourselves the simplification of assuming that the rates
of remuneration of the different factors of production which enter into
marginal cost all change in the same proportion, i.e. in the same proportion
as the wage-unit, it follows that the general price-level (taking equipment
and technique as given) depends partly on the wage-unit and partly on the
volume of employment. Hence the effect of changes in the quantity of money
on the price-level can be considered as being compounded of the effect
on the wage-unit and the effect on employment.
To elucidate the ideas involved, let us simplify our assumptions still
further, and assume (1) that all unemployed resources are homogeneous and
interchangeable in their efficiency to produce what is wanted, and (2)
that the factors of production entering into marginal cost are content
with the same money-wage so long as there is a surplus of them unemployed.
In this case we have constant returns and a rigid wage-unit, so long as
there is any unemployment. It follows that an increase in the quantity
of money will have no effect whatever on prices, so long as there is any
unemployment, and that employment will increase in exact proportion to
any increase in effective demand brought about by the increase in the quantity
of money; whilst as soon as full employment is reached, it will thenceforward
be the wage-unit and prices which will increase in exact proportion to
the increase in effective demand. Thus if there is perfectly elastic supply
so long as there is unemployment, and perfectly inelastic supply so soon
as full employment is reached, and if effective demand changes in the same
proportion as the quantity of money, the quantity theory of money can be enunciated as follows: 'So long as there is unemployment, employment
will
change in the same proportion as the quantity of money; and when there
is full employment, prices will change in the same proportion as the quantity
of money'.
Having, however, satisfied tradition by introducing a sufficient number
of simplifying assumptions to enable us to enunciate a quantity theory
of money, let us now consider the possible complications which will in
fact influence events:
(1) Effective demand will not change in exact proportion to the
quantity of money.
(2) Since resources are not homogeneous, there will be diminishing,
and not constant, returns as employment gradually increases.
(3) Since resources are not interchangeable, some commodities
will reach a condition of inelastic supply whilst there are still unemployed
resources available for the production of other commodities.
(4) The wage-unit will tend to rise, before full employment has
been reached.
(5) The remunerations of the factors entering into marginal cost
will not all change in the same proportion.
Thus we must first consider the effect of changes in the quantity of
money on the quantity of effective demand; and the increase in effective
demand will, generally speaking, spend itself partly in increasing the
quantity of employment and partly in raising the level of prices. Thus
instead of constant prices in conditions of unemployment, and of prices
rising in proportion to the quantity of money in conditions of full employment,
we have in fact a condition of prices rising gradually as employment increases.
The theory of prices, that is to say, the analysis of the relation between
changes in the quantity of money and changes in the price-level with a
view to determining the elasticity of prices in response to changes in
the quantity of money, must, therefore, direct itself to the five complicating factors
set forth above.
We will consider each of them in turn. But this procedure must not be
allowed to lead us into supposing that they are, strictly speaking, independent.
For example, the proportion, in which an increase in effective demand is
divided in its effect between increasing output and raising prices, may
affect the way in which the quantity of money is related to the quantity
of effective demand. Or, again, the differences in the proportions, in
which the remunerations of different factors change, may influence the
relation between the quantity of money and the quantity of effective demand.
The object of our analysis is, not to provide a machine, or method of blind
manipulation, which will furnish an infallible answer, but to provide ourselves
with an organised and orderly method of thinking out particular problems;
and, after we have reached a provisional conclusion by isolating the complicating
factors one by one, we then have to go back on ourselves and allow, as
well as we can, for the probable interactions of the factors amongst themselves.
This is the nature of economic thinking. Any other way of applying our
formal principles of thought (without which, however, we shall be lost
in the wood) will lead us into error. It is a great fault of symbolic pseudo-mathematical
methods of formalising a system of economic analysis, such as we shall
set down in section vi of this chapter, that they expressly assume strict
independence between the factors involved and lose all their cogency and
authority if this hypothesis is disallowed; whereas, in ordinary discourse,
where we are not blindly manipulating but know all the time what we are
doing and what the words mean, we can keep 'at the back of our heads' the
necessary reserves and qualifications and the adjustments which we shall
have to make later on, in a way in which we cannot keep complicated partial
differentials 'at the back' of several pages of algebra which assume that
they all vanish. Too large a proportion of recent 'mathematical' economics
are merely concoctions, as imprecise as the initial assumptions they rest
on, which allow the author to lose sight of the complexities and interdependencies
of the real world in a maze of pretentious and unhelpful symbols.
IV
(1) The primary effect of a change in the quantity of money on
the quantity of effective demand is through its influence on the rate of
interest. If this were the only reaction, the quantitative effect could
be derived from the three elements¾(a)
the schedule of liquidity-preference which tells us by how much the rate
of interest will have to fall in order that the new money may be absorbed
by willing holders, (b) the schedule of marginal efficiencies which
tells us by how much a given fall in the rate of interest will increase
investment, and (c) the investment multiplier which tells us by
how much a given increase in investment will increase effective demand
as a whole.
But this analysis, though it is valuable in introducing order and method
into our enquiry, presents a deceptive simplicity, if we forget that the
three elements (a), (b) and (c) are themselves partly
dependent on the complicating factors (2), (3), (4) and (5) which we have
not yet considered. For the schedule of liquidity-preference itself depends
on how much of the new money is absorbed into the income and industrial
circulations, which depends in turn on how much effective demand increases
and how the increase is divided between the rise of prices, the rise of
wages, and the volume of output and employment. Furthermore, the schedule
of marginal efficiencies will partly depend on the effect which the circumstances
attendant on the increase in the quantity of money have on expectations
of the future monetary prospects. And finally the multiplier will be influenced by the way
in which the new income resulting from the increased effective demand is
distributed between different classes of consumers. Nor, of course, is
this list of possible interactions complete. Nevertheless, if we have all
the facts before us, we shall have enough simultaneous equations to give
us a determinate result. There will be a determinate amount of increase
in the quantity of effective demand which, after taking everything into
account, will correspond to, and be in equilibrium with, the increase in
the quantity of money. Moreover, it is only in highly exceptional circumstances
that an increase in the quantity of money will be associated with a decrease
in the quantity of effective demand.
The ratio between the quantity of effective demand and the quantity
of money closely corresponds to what is often called the 'income-velocity
of money';¾except that effective demand
corresponds to the income the expectation of which has set production moving,
not to the actually realised income, and to gross, not net, income. But
the 'income-velocity of money' is, in itself, merely a name which explains
nothing. There is no reason to expect that it will be constant. For it
depends, as the foregoing discussion has shown, on many complex and variable
factors. The use of this term obscures, I think, the real character of
the causation, and has led to nothing but confusion.
(2) As we have shown above (Chapter 4), the distinction between diminishing and constant returns partly
depends on whether workers are remunerated in strict proportion to their
efficiency. If so, we shall have constant labour-costs (in terms of the
wage-unit) when employment increases. But if the wage of a given grade
of labourers is uniform irrespective of the efficiency of the individuals,
we shall have rising labour-costs, irrespective of the efficiency of the
equipment. Moreover, if equipment is non-homogeneous and some part of it
involves a greater prime cost per unit of output, we shall have increasing marginal prime costs over and
above any increase due to increasing labour-costs.
Hence, in general, supply price will increase as output from a given
equipment is increased. Thus increasing output will be associated with
rising prices, apart from any change in the wage-unit.
(3) Under (2) we have been contemplating the possibility of supply
being imperfectly elastic. If there is a perfect balance in the respective
quantities of specialised unemployed resources, the point of full employment
will be reached for all of them simultaneously. But, in general, the demand
for some services and commodities will reach a level beyond which their
supply is, for the time being, perfectly inelastic, whilst in other directions
there is still a substantial surplus of resources without employment. Thus
as output increases, a series of 'bottle-necks' will be successively reached,
where the supply of particular commodities ceases to be elastic and their
prices have to rise to whatever level is necessary to divert demand into
other directions.
It is probable that the general level of prices will not rise very much
as output increases, so long as there are available efficient unemployed
resources of every type. But as soon as output has increased sufficiently
to begin to reach the 'bottle-necks', there is likely to be a sharp rise
in the prices of certain commodities.
Under this heading, however, as also under heading (2), the elasticity
of supply partly depends on the elapse of time. If we assume a sufficient
interval for the quantity of equipment itself to change, the elasticities
of supply will be decidedly greater eventually. Thus a moderate change
in effective demand, coming on a situation where there is widespread unemployment,
may spend itself very little in raising prices and mainly in increasing
employment; whilst a larger change, which, being unforeseen, causes some
temporary 'bottle-necks' to be reached, will spend itself in raising prices, as
distinct from employment, to a greater extent at first than subsequently.
(4) That the wage-unit may tend to rise before full employment
has been reached, requires little comment or explanation. Since each group
of workers will gain, cet. par., by a rise in its own wages, there
is naturally for all groups a pressure in this direction, which entrepreneurs
will be more ready to meet when they are doing better business. For this
reason a proportion of any increase in effective demand is likely to be
absorbed in satisfying the upward tendency of the wage-unit.
Thus, in addition to the final critical point of full employment at
which money-wages have to rise, in response to an increasing effective
demand in terms of money, fully in proportion to the rise in the prices
of wage-goods, we have a succession of earlier semi-critical points at
which an increasing effective demand tends to raise money-wages though
not fully in proportion to the rise in the price of wage-goods; and similarly
in the case of a decreasing effective demand. In actual experience the
wage-unit does not change continuously in terms of money in response to
every small change in effective demand; but discontinuously. These points
of discontinuity are determined by the psychology of the workers and by
the policies of employers and trade unions. In an open system, where they
mean a change relatively to wage-costs elsewhere, and in a trade cycle,
where even in a closed system they may mean a change relatively to expected
wage-costs in the future, they can be of considerable practical significance.
These points, where a further increase in effective demand in terms of
money is liable to cause a discontinuous rise in the wage-unit, might be
deemed, from a certain point of view, to be positions of semi-inflation,
having some analogy (though a very imperfect one) to the absolute inflation
(cf. Chapter 21 below) which ensues on an increase in effective demand in circumstances of
full employment. They have, moreover, a good deal of historical importance.
But they do not readily lend themselves to theoretical generalisations.
(5) Our first simplification consisted in assuming that the remunerations
of the various factors entering into marginal cost all change in the same
proportion. But in fact the rates of remuneration of different factors
in terms of money will show varying degrees of rigidity and they may also
have different elasticities of supply in response to changes in the money-rewards
offered. If it were not for this, we could say that the price-level is
compounded of two factors, the wage-unit and the quantity of employment.
Perhaps the most important element in marginal cost which is likely
to change in a different proportion from the wage-unit, and also to fluctuate
within much wider limits, is marginal user cost. For marginal user cost
may increase sharply when employment begins to improve, if (as will probably
be the case) the increasing effective demand brings a rapid change in the
prevailing expectation as to the date when the replacement of equipment
will be necessary.
Whilst it is for many purposes a very useful first approximation to
assume that the rewards of all the factors entering into marginal prime-cost
change in the same proportion as the wage-unit, it might be better, perhaps,
to take a weighted average of the rewards of the factors entering into
marginal prime-cost, and call this the cost-unit. The cost-unit,
or, subject to the above approximation, the wage-unit, can thus be regarded
as the essential standard of value; and the price-level, given the state
of technique and equipment, will depend partly on the cost-unit, and partly
on the scale of output, increasing, where output increases, more than
in proportion to any increase in the cost-unit, in accordance with the
principle of diminishing returns in the short period. We have full employment when output has risen to a level at
which the marginal return from a representative unit of the factors of
production has fallen to the minimum figure at which a quantity of the
factors sufficient to produce this output is available.
V
When a further increase in the quantity of effective demand produces
no further increase in output and entirely spends itself on an increase
in the cost-unit fully proportionate to the increase in effective demand,
we have reached a condition which might be appropriately designated as
one of true inflation. Up to this point the effect of monetary expansion
is entirely a question of degree, and there is no previous point at which
we can draw a definite line and declare that conditions of inflation have
set in. Every previous increase in the quantity of money is likely, in
so far as it increases effective demand, to spend itself partly in increasing
the cost-unit and partly in increasing output.
It appears, therefore, that we have a sort of asymmetry on the two sides
of the critical level above which true inflation sets in. For a contraction
of effective demand below the critical level will reduce its amount measured
in cost-units; whereas an expansion of effective demand beyond this level
will not, in general, have the effect of increasing its amount in terms
of cost-units. This result follows from the assumption that the factors
of production, and in particular the workers, are disposed to resist a
reduction in their money-rewards, and that there is no corresponding motive
to resist an increase. This assumption is, however, obviously well founded
in the facts, due to the circumstance that a change, which is not an all-round
change, is beneficial to the special factors affected when it is upward
and harmful when it is downward.
If, on the contrary, money-wages were to fall without limit whenever there was a tendency for less than full employment,
the asymmetry would, indeed, disappear. But in that case there would be
no resting-place below full employment until either the rate of interest
was incapable of falling further or wages were zero. In fact we must have
some factor, the value of which in terms of money is, if not fixed,
at least sticky, to give us any stability of values in a monetary system.
The view that any increase in the quantity of money is inflationary
(unless
we mean by inflationary merely that prices are rising) is bound up with
the underlying assumption of the classical theory that we are always in
a condition where a reduction in the real rewards of the factors of production
will lead to a curtailment in their supply.
VI
With the aid of the notation introduced in Chapter 20 we can, if we wish, express the substance of the above in symbolic
form.
Let us write MV = D where M is the
quantity of money, V its income-velocity (this definition differing
in the minor respects indicated above from the usual definition) and D
the effective demand. If, then, V is constant, prices will change
in the same proportion as the quantity of money provided that ep
( = (Dpd) / (pdD)) is unity. This condition is satisfied
(see Chapter 20 above) if eo = 0 or if ew
= 1. The condition ew = 1 means that
the wage-unit in terms of money rises in the same proportion as the effective
demand, since ew = (DdW) /
(WdD) and the condition eo = 0 means
that output no longer shows any response to a further increase in effective
demand, since eo = (DdO) /
(OdD). Output in either case will be unaltered. Next, we can deal
with the case where income-velocity is not constant, by introducing yet
a further elasticity, namely the elasticity of effective demand in response to
changes in the quantity of money,
MdD
ed = ¾¾¾¾
DdM
This gives us
Mdp
¾¾¾¾ =
ep × ed where ep
= 1 - ee × eo(1
- ew);
pdM
so that
e =
ed -
(1
- ew)
ed
×
eeeo
= ed(1 -
ee eo + ee eo
× ew)
where
e without suffix (= (
Mdp)
/ (
pdM))
stands for the apex of this pyramid and measures the response of money-prices
to changes in the quantity of money.
Since this last expression gives us the proportionate change in prices
in response to a change in the quantity of money, it can be regarded as
a generalised statement of the quantity theory of money. I do not myself
attach much value to manipulations of this kind; and I would repeat the
warning, which I have given above, that they involve just as much tacit
assumption as towhat variables are taken as independent (partial differentials
being ignored throughout) as does ordinary discourse, whilst I doubt if
they carry us any further than ordinary discourse can. Perhaps the best
purpose served by writing them down is to exhibit the extreme complexity
of the relationship between prices and the quantity of money, when we attempt
to express it in a formal manner. It is, however, worth pointing out that,
of the four terms ed, ew, ee
and eo upon which the effect on prices of changes in
the quantity of money depends, ed stands for the liquidity
factors which determine the demand for money in each situation, ew
for the labour factors (or, more strictly, the factors entering into prime-cost)
which determine the extent to which money-wages are raised as employment
increases, and ee and eo for the physical
factors which determine the rate of decreasing returns as more employment is applied to the existing
equipment.
If the public hold a constant proportion of their income in money, ed
= 1; if money-wages are fixed, ew =
0; if there are constant returns throughout so that marginal return equals
average return, ee eo =
1; and if there is full employment either of labour or of equipment,
ee
eo = 0.
Now e = 1, if ed =
1, and ew = 1; or if ed
= 1,
ew = 0 and ee
× eo = 0; or if ed
= 1 and eo = 0. And obviously there
is a variety of other special eases in which e = 1.
But in general e is not unity; and it is, perhaps, safe to make
the generalisation that on plausible assumptions relating to the real world,
and excluding the case of a 'flight from the currency' in which ed
and ew become large, e is, as a rule, less than
unity.
VII
So far, we have been primarily concerned with the way in which changes
in the quantity of money affect prices in the short period. But in the
long run is there not some simpler relationship?
This is a question for historical generalisation rather than for pure
theory. If there is some tendency to a measure of long-run uniformity in
the state of liquidity-preference, there may well be some sort of rough
relationship between the national income and the quantity of money required
to satisfy liquidity-preference, taken as a mean over periods of pessimism
and optimism together. There may be, for example, some fairly stable proportion
of the national income more than which people will not readily keep in
the shape of idle balances for long periods together, provided the rate
of interest exceeds a certain psychological minimum; so that if the quantity
of money beyond what is required in the active circulation is in excess
of this proportion of the national income, there will be a tendency sooner
or later for the rate of interest to fall to the neighbourhood of this
minimum. The falling rate of interest will then, cet. par., increase
effective demand, and the increasing effective demand will reach one or
more of the semi-critical points at which the wage-unit will tend to show
a discontinuous rise, with a corresponding effect on prices. The opposite
tendencies will set in if the quantity of surplus money is an abnormally
low proportion of the national income. Thus the net effect of fluctuations
over a period of time will be to establish a mean figure in conformity
with the stable proportion between the national income and the quantity
of money to which the psychology of the public tends sooner or later to
revert.
These tendencies will probably work with less friction in the upward
than in the downward direction. But if the quantity of money remains very
deficient for a long time, the escape will be normally found in changing
the monetary standard or the monetary system so as to raise the quantity
of money, rather than in forcing down the wage-unit and thereby increasing
the burden of debt. Thus the very long-run course of prices has almost
always been upward. For when money is relatively abundant, the wage-unit
rises; and when money is relatively scarce, some means is found to increase
the effective quantity of money.
During the nineteenth century, the growth of population and of invention,
the opening-up of new lands, the state of confidence and the frequency
of war over the average of (say) each decade seem to have been sufficient,
taken in conjunction with the propensity to consume, to establish a schedule
of the marginal efficiency of capital which allowed a reasonably satisfactory
average level of employment to be compatible with a rate of interest high
enough to be psychologically acceptable to wealth-owners. There is evidence
that for a period of almost one hundred and fifty years the long-run typical
rate of interest in the leading financial centres was about 5 per cent, and the gilt-edged rate between 3 and
3½ per cent; and that these rates of interest were modest enough
to encourage a rate of investment consistent with an average of employment
which was not intolerably low. Sometimes the wage-unit, but more often
the monetary standard or the monetary system (in particular through the
development of bank-money), would be adjusted so as to ensure that the
quantity of money in terms of wage-units was sufficient to satisfy normal
liquidity-preference at rates of interest which were seldom much below
the standard rates indicated above. The tendency of the wage-unit was,
as usual, steadily upwards on the whole, but the efficiency of labour was
also increasing. Thus the balance of forces was such as to allow a fair
measure of stability of prices;¾the highest
quinquennial average for Sauerbeck's index number between 1820 and 1914
was only 50 per cent above the lowest. This was not accidental. It is rightly
described as due to a balance of forces in an age when individual groups
of employers were strong enough to prevent the wage-unit from rising much
faster than the efficiency of production, and when monetary systems were
at the same time sufficiently fluid and sufficiently conservative to provide
an average supply of money in terms of wage-units which allowed to prevail
the lowest average rate of interest readily acceptable by wealth-owners
under the influence of their liquidity-preferences. The average level of
employment was, of course, substantially below full employment, but not
so intolerably below it as to provoke revolutionary changes.
To-day and presumably for the future the schedule of the marginal efficiency
of capital is, for a variety of reasons, much lower than it was in the
nineteenth century. The acuteness and the peculiarity of our contemporary
problem arises, therefore, out of the possibility that the average rate
of interest which will allow a reasonable average level of employment is
one so unacceptable to wealth-owners that it cannot be readily established
merely by manipulating the quantity of money. So long as a tolerable level
of employment could be attained on the average of one or two or three decades
merely by assuring an adequate supply of money in terms of wage-units,
even the nineteenth century could find a way. If this was our only problem
now¾if a sufficient degree of devaluation
is all we need¾we, to-day, would certainly
find a way.
But the most stable, and the least easily shifted, element in our contemporary
economy has been hitherto, and may prove to be in future, the minimum rate
of interest acceptable to the generality of wealth-owners. If a tolerable level of employment requires a rate of interest much below
the average rates which ruled in the nineteenth century, it is most doubtful
whether it can be achieved merely by manipulating the quantity of money.
From the percentage gain, which the schedule of marginal efficiency of
capital allows the borrower 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 which the lender requires to cover his
risk and uncertainty, before we arrive at the net yield available to tempt
the wealth-owner to sacrifice his liquidity. If, in conditions of tolerable
average employment, this net yield turns out to be infinitesimal, time-honoured
methods may prove unavailing.
To return to our immediate subject, the long-run relationship between
the national income and the quantity of money will depend on liquidity-preferences.
And the long-run stability or instability of prices will depend on the
strength of the upward trend ofthe wage-unit (or, more precisely, of the
cost-unit) compared with the rate of increase in the efficiency of the
productive system.