Prosperity and Depression.pdf

A1IIl!JJiJ oj ThlOrieJPart ICC not an enlarged~ but a diminished amount ofthings in general ".In this case there will not be any increased willingness to save noryet any increased expectation ofyield toinduce employers to borrowmore for the purpose of increasing their real demand for labour.!Supposing, however, that the general demand for agriculturalproducts is elastic, the increase in the demand for labour in termsof wage-goods will lead to more employment for the reason thatthe supply-schedule of labour, thanks to the rigidity ofwage rates,is highly elastic.'So far, the analysis proceeds on the assumption of a purelybarter economy. The following is Professor PIGOUtS adaptationof the argument to a money economy.The additional borrowing requirements of the employers,induced by their improved expectations ofyield, are satisfied partlyby the banks. The result is a monetary expansion ofa cumulativenature which, in a variety ofways, enhances the demand for labourin terms of wage-goods and thus increases industrial output. SSince workers under the influence of the cc money illusion "are willing to accept lower real wages' if they appear in the shapeof rising prices, the rise in prices which results from monetaryexpansion has the dlect ofincreasing the supply oflabour availableat a given real wage. Hence, industrial activity responds moresharply to an increase in the real demand of the agriculturists.tThis argumentis obscured by the ambiguity of theE/flJticitJ phrase ccelasticity of the general demand for· agriculofdemlJllll tural produce". Normally, we think of an elasillterms ticity ofdemand in terms ofmoney; but it might beof 1/10111.1 and translated into cc real" terms as relating to thetJj cc effort". quantity ofindustrial produce, the use or consumptionof which the industrial population as a wholeis willing to forgo in exchange for varying quantities ofagriculturalproduce, the total production of industrial produce remainingWlchanged-.1 Industrial Fluctuations, 2nd ed., page 41.I Ibid., Chapter II, page 20,; and Chapter XX.I Ibid., Chapter III, page 33, Chapters XVI and XVII, etc.• Theory 01 Unemployment, Part IV and Part V, Chapter IX.