CH. 4

THE PURCHASING POWER OF MONEY

57

(ii.) The Purchasing Power op Money orConsumption Standard

There is at present a most serious lack of satis-factory index-numbers of Purchasing Power. Hithertono official authority has compiled an index-numberwhich could fairly be called an Index-Number of Pur-chasing Power. They generally deal with one or otherof the secondary price-levels, such as the wholesale, orcost-of-living price-levels, which we shall examinebelow. Apart from this, all the Index-Numbers atpresent available are much too crude to take accountof the subtleties and serious difficulties of the prob-lem of measuring changes between one position andanother, which we are postponing to Chapter 8.

An Index-Number of the Purchasing Power ofMoney should include, directly or indirectly, once andonce only, all the items which enter into final consump-tion (as distinct from an intermediate productive pro-cess) weighted in proportion to the amount of theirmoney-income which the consuming public devote tothem. Since it would be a matter of great complexityto compile a completely comprehensive index on theselines, we should be satisfied in practice with an indexwhich covered a large and representative part of totalconsumption. But we have not at present even this.

The failure to compile a complete or adequateindex-number of consumption is partly to be explainedby the great practical difficulties; but it is also due tothe excessive prestige attaching to a particular typeof secondary index-number, namely the index-numberof wholesale prices. When we are considering short-period phenomena, as in the Credit-Cycle, this Index-Number has the defect that its movements do notoccur at the same time or in the same degree as thecorrelated movements in the Purchasing Power ofMoney. And when we are considering long-periodphenomena, it is open to the objection that it omits