OH. II

THE CONDITIONS OE EQUILIBRIUM

169

that we can alter the rate of earnings by fiat, can accom-modate the supply of money to the rate of earningswhich we have decreed, and can control the rate ofinvestment, then we can afford to follow our fancy asto what we stabilise—the purchasing power of money,its labour power, or anything else—without runningthe risk of setting up social and economic frictions orof causing waste.

If, on the other hand, we have control of theEarnings System but not of the Currency System, then it lies outside our power to determine what theequilibrium price-level shall be ; and the best we cando is to use our power so as to ensure that the equi-librium rate of earnings, which is dictated to us byoutside forces, shall come about with the minimum offriction and waste. That is to say, we had better fixthe rate of earnings at a level which will be compatiblewith the currency situation without any disturbanceof the equality of I and S.

But if—which is the case usually assumed byMonetary Keformers—we have at least a partialcontrol of the Currency System but not of theEarnings System, so that we have some power ofdeciding what the equilibrium price-level and rateof earnings is to be, but no power of bringing aboutthis equilibrium except by setting into operation themechanism of induced changes, then we may do wellin choosing our standard to consider what will fit inbest with whatever may be the natural tendencies ofspontaneous change which characterise the EarningsSystem as it actually is.

If, for example, the Earnings System, left to itself,tends to approximate more nearly to steady efficiency-earnings than to steady effort-earnings, then we shalldo well, perhaps, to stabilise the purchasing power ofmoney ; but if the facts are the other way round, thento stabilise the labour power of money. Or, if money-rates of earnings have a rising tendency (from the