54

A TKEATISE ON MONEY

BK. II

chasing power, depends on the corresponding Price-level and is given by the appropriate Index-number.

Is there any one of these Price-levels, and if sowhich, corresponding par excellence to what we meanby the Purchasing Power of Money ? We need nothesitate over the answer to this question. Howevergreat the theoretical and practical difficulties ofmeasuring changes in the Purchasing Power ofMoney, there need not be any doubt as to whatwe mean by it. We mean by the Purchasing Powerof Money the power of money to buy the goodsand services on the purchase of which for purposesof consumption a given community of individualsexpend their money income . 1 That is to say, it ismeasured by the quantity of such goods and services,weighted according to their importance as objectsof consumption, which a unit of money will buy ;and the appropriate index-number is of the typesometimes designated as the Consumption Index. Itfollows that Purchasing Power must always be definedwith reference to a particular set of individuals in agiven situation, namely those whose actual consumptionfurnishes us with our standard, and has no clear mean-ing unless this reference has been given.

This does not mean that there are not othertypes of composite commodities, price-levels, andprice index-numbers of great interest and importancefor various purposes and inquiries. Indeed the notionof there being a variety of price-levels, which fluctuaterelatively to one another just as the prices of indi-vidual commodities fluctuate relatively to one another,is very helpful to an understanding of Monetary Theory .

1 Cf. Marshall, Money Credit and Commerce, p. 21 : “ The term ‘ thegeneral purchasing power of money ’ is usually and reasonably taken to meanthe power which money has of purchasing commodities in a country (or otherplace) in those proportions in which they are in fact consumed there.” Andagain p. 30 : “ The general purchasing power of money should properly bemeasured by reference to the retail prices paid by the ultimate consumers offinished commodities.”