The Best Index Number for Stabilization Purposes

Abstract

Stabilization on the basis of any broadly representative index number would be far better than no stabilization at all, but what is the best index number? My discussion will not include all phases of the problem but will be almost exclusively concerned with what appears to me to be the most important phase, namely, the selection of the items which enter into the index number. I shall also assume without analysis that practical considerations make it necessary to adopt an approximately fixed index number as a guide. As the first step, we should restrict our selection to new goods which are in finished form for the consumer, since the promotion of economic justice in debtor and creditor relationships is not concerned with second hand goods, or with the prices of goods at the earlier stages of production, and the stabilization of the price of finished goods would strongly tend to prevent fluctuations in the state of industrial and business activity at all stages. The special problem raised by the fluctuations in food stuffs due to changes in crop conditions may be reasonably solved by taking the trend prices of such goods instead of current prices. With these preliminary observations in mind, let us proceed: Goods and services may be divided into three general groups: (1) Those which are freely reproducible, and produced under competitive conditions. (2) Those which are produced under more or less monopolistic conditions. (3) Non-reproducible goods.