CH. II

THE CONDITIONS OF EQUILIBRIUM 167

spontaneous tendency for price-levels to change inthe opposite direction to changes in efficiency, anyfurther change due to a disparity between Investmentand Saving being superimposed on this.

In actual fact, earnings are probably fixed on thewhole somewhere between an effort-basis and anefficiency-basis. If, as before, W stands for effort-earnings and Wj for efficiency-earnings, and if W 2stands for actual earnings, then, if actual earnings arefixed in a proportion a on an effort-basis and in a pro-portion b on an efficiency-basis, then W 2 = (a . e + b) W 1?where e is the coefficient of efficiency. In this case,there will be a tendency towards spontaneous changesin P (or n) inversely proportional to such changes asoccur in (a . e + b) for reasons other than a change inentrepreneurs’ profits.

Let the reader observe that changes in the averagerate of earnings have no direct tendency in themselvesto bring about profits or losses, because—so long asthe Currency Authority allows the change withoutattempting to counteract it—entrepreneurs will alwaysbe recouped for their changed outlay by the corre-sponding change in their receipts, which will resultfrom the proportionate change in the price-level. Butif such spontaneous changes in the rate of earningsas tend to occur require a supply of money which isincompatible with the ideas of the Currency Authorityor with the limitations on its powers, then the latterwill be compelled, in its endeavour to redress thesituation, to bring influences to bear which will upsetthe equilibrium of Investment and Saving , and soinduce the entrepreneurs to modify their offers to thefactors of production in such a way as to counteractthe spontaneous changes which have been occurringin the rates of earnings.

Thus we can conveniently distinguish what wehave already called “ spontaneous ” changes in therates of efficiency-earnings and in the price-levels due