Section on Index Numbers and the Measure of Values

Abstract

The first paper was read by Dr. Gottfried Haberler, of Vienna. Dr. Haberler expressed the view that it was fortunate that statisticians and economists have thus far failed accurately to define what they mean by the term "general purchasing power of money," for had they waited to define the term, they would not as yet have begun to compute a general index number of the price level. Professor Edgeworth long ago pointed out that the concept of the general price level must be related to utility and general welfare, for if the price level is said to be constant, it should indicate that a given amount of money would continue to purchase a constant volume of gratification. Since different individuals receive different amounts of gratification from the same commodities, it follows that a special "index of the price level" ought to be computed for each individual. Since this is obviously impracticable, the best that can be done is to compute index numbers for different social groups. Commodities dealt with in making up such index numbers should include only direct or consumers' goods, and should exclude commodities constituting savings, that is, indirect or production goods, for these commodities represent income stored for future use. When we attempt to stabilize the price level, we must needs deal with a "general price level" and not with an individual price level. The "general price level" must be defined as an average of individual price levels. Fortunately, from the standpoint of the making of index numbers, many of these individual price levels tend to follow more or less parallel courses. Had we sufficient data concerning individual price levels, probably the most representative method of determining the general price level would be to take the mode of individual price levels. The purpose of stabilization is, of course, to give as high a degree of justice as possible to all individuals. However, it is impossible for any single index series to give justice to all creditors and all debtors. The best that can be done is to eliminate the most striking degrees of injustice.