to John Hicks to give a satisfactory presentation. Equilibrium between supply and demand of money depends on two variables – interest rate and income – and these are the same two variables as are related by the equation between the propensity to save and the schedule of the marginal efficiency of capital. It follows that neither equation can be solved in isolation and that they need to be considered simultaneously. The 'first postulate' of classical economics was also accepted as valid by Keynes, though not used in the first four books of the General Theory. The Keynesian system can thus be represented by three equations in three variables as shown below, roughly following Hicks. Three analogous equations can be given for classical economics. As presented below they are in forms given by Keynes himself (the practice of writing r as an argument to V derives from his Treatise on money). Here y is written as a function of N, the number of workers employed; p is the price (in money terms) of a unit of real output; V(r) is the velocity of money; and W is the wage rate in money terms. N, p and r are the 3 variables we need to recover. In the Keynesian system income is measured in wage units and is therefore not a function of the level of employment alone since it will also vary with prices. The first postulate assumes that prices can be represented by a single variable. Strictly it should be modified to take account of the distinction between marginal wage cost and marginal prime cost. The classics took the second equation as determining the rate of interest, the third as determining the price level, and the first as determining employment. Keynes believed that the last two equations could be solved together for Y and r, which is not possible in the classical system. He accordingly concentrated on these two equations, treating income as 'almost the same thing' as employment on p. 247. Here we see the benefit he has gained by simplifying the form of the consumption function. If he had written it (slightly more accurately) as C(Y,p/W), then he would have needed to bring in the first equation to get a solution. If we wish to examine the classical system our task is made easier if we assume that the effect of the interest rate on the velocity of