CH. 4

THE PURCHASING POWER OF MONEY

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But the existence of a plurality of other and, as theymay fairly be called, secondary price-levels appropriateto different purposes and different contexts is not areason for admitting any ambiguity as to the meaningof the Purchasing Power of Money itself.

The money-of-account—with which we beganChapter 1—was devised long ago in order to satisfythe need for a term in which to express generalpurchasing power. A definite measure of purchasingpower by means of index-numbers of prices is,however, a conception of modern times. A shortsummary of the History of Index-Numbers is givenin Appendix IV. of Professor Irving Fisher ’s TheMaking of Index-Numbers ; to which I need onlyadd a mention of Bishop Fleetwood’s Chronicon Precio-sum, 1706 (particularly the first part of chap. iv.and chap, vi.), described by Edgeworth as “ theearliest treatise on index-numbers and one of thebest ”, where the conception of purchasing power andthe measures of the changing purchasing power ofmoney are first treated after the modern manner.The following quotation indicates the Bishop’s line ofapproach : “ Since money is of no other use, than as itis the thing with which we purchase the necessariesand conveniences of life, ’tis evident, that if £5 inH. VI. days would purchase 5 Quarters of Wheat,4 Hogsheads of Beer, and 6 Yards of Cloth , he whothen had £5 in his pocket was full as rich a man ashe who has now £20 if with that £20 he can purchaseno more Wheat, Beer, or Cloth than the other.” Butfor practical purposes Price Index -Numbers date fromthe 1860’s. 1

Thus the Money-of-Account is the term in whichunits of Purchasing Power are expressed. Money is

1 The important literature of the subject is comprised within a smallcompass, namely :

1. Jevons , Papers reprinted in Investigations in Currency and Finance.

2. Edgeworth, Papers reprinted in Papers relating to Political Economy ,vol. i.

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