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A TREATISE ON MONEY

BK. II

two schedules of expenditure which we consider re-presentative of the consumption of similar persons inthe respective positions and then compare the pricesof the two “ equivalent ” composite commoditieswhich correspond to the two schedules.

It is unlikely that complete accuracy will be obtain-able either by the direct method of comparing themoney-incomes of “ similar ” persons or by the in-direct method of comparing the prices of “ equivalent ”composite commodities. We are faced, therefore, witha problem of approximation. The methods of ap-proximation in current use suffer, I think, from thosewho employ them not being sufficiently clear exactlywhat they are trying to compare. In the followingdiscussion I try to analyse what the different methodsof approximation amount to and what they assume—both those which seem to me to be valid and thosewhich seem to be invalid.

A. The Direct Method of comparing Incomesof Similar Persons

This method, which has been entirely discarded bystatisticians, is, in fact, the method which is most oftenemployed by common sense. It depends on a common-sense judgment of degrees of well-being by persons whohave a general acquaintance with the conditions of lifein both of the two positions under comparison. Whena Scotsman is offered an appointment in London , oran Englishman is offered one in Australia or theUnited States or Germany , and is wondering what themoney-income he will get is going to be “worth”compared with the income he is now getting at home,i.e. what the comparative purchasing power of moneywill be in the new place, he does not usually consultany of the official index-numbers, and he would notget a very useful answer if he did. He asks a friendwho is acquainted with the conditions of life in the