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playing with figures, are based upon the idea of measuring the utility of a certain quantity of money. [5] The object is to determine whether a gram of gold is more or less useful today than it was at a certain time in the past. As far as objective use value is concerned, such an investigation may perhaps yield results. We may assume the fiction, if we like, that, say, a loaf of bread is always of the same utility in the objective sense, always comprises the same food value. It is not necessary for us to enter at all into the question of whether this is permissible or not. For certainly this is not the purpose of index numbers; their purpose is the determination of the subjective significance of the quantity of money in question. For this, recourse must be had to the quite nebulous and illegitimate fiction of an eternal human with invariable valuations. In Wieser's typical incomes that have to be traced back through the centuries may be seen an attempt to refine this fiction and to free it from its limitations. But even this attempt cannot make the impossible possible, and was necessarily bound to fail. It represents the most perfect conceivable development of the index-number system, and the fact that this also leads to no practical result condemns the whole business. Of course, this could not escape Wieser. If he neglected to lay particular stress upon it, this is probably due solely to the circumstance that his concern was not so much to indicate a way of solving this insoluble problem, as to extract from a usual method all that could be got from it.

5 The Practical Utility of Index Numbers

The inadmissibility of the methods proposed for measuring variations in the value of money does not obtrude itself too much if we only want to use them for solving practical problems of economic policy. Even if index numbers cannot fulfill the demands that theory has to make, they can still, in spite of their fundamental shortcomings and the inexactness of the methods by which they are actually determined, perform useful workaday services for the politician.

If we have no other aim in view than the comparison of points of time that lie close to one another, then the errors that are involved in every method of calculating numbers may be so far ignored as to allow us to draw certain rough conclusions from them. Thus, for example, it becomes possible to a certain extent to span the temporal gap that lies, in a period of variation in the value of money, between movements of stock exchange rates and movements of the purchasing power that is expressed in the prices of commodities. [6]

In the same way we can follow statistically the progress of variations in purchasing power from month to month. The practical utility of all these calculations for certain purposes is beyond doubt; they have proved their worth in quite recent events. But we should beware of demanding more from them than they are able to perform.

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[1] [Following Menger, we should call the first of these two problems the problem of the measurability of the äussere objective exchange value of money, the second that of the measurability of its innere objective exchange value. See also p. 146 n. H.E.B.]

[2] See Menger, Grundsätze der Volkswirtschaftslehre, 2d ed. (Vienna, 1923), pp. 298 ff.

[3] On Falkner's method, see Laughlin, The Principles of Money (London, 1903), pp. 213—21; Kinley, Money (New York, 1909), pp. 253 ff.

[4] See Wieser, "Uber die Messung der Veränderungen des Geldwerts," Schriften des Vereins für Sozialpolitik 132 (Leipzig, 1910): 544 ff. Joseph Lowe seems to have made a similar proposal as early as 1822; on this, see Walsh, The Measurement of General Exchange Value (New York, 1901), p. 84.

[5] See Weiss, Die moderne Tendenz in der Lehre vom Geldwert, Zeitschrift für Volkswirtschaft, Sozialpolitik und Verwaltung, vol. 19, p. 546.

[6] See also pp. 213 ff. below.

Chapter 12. The Social Consequences of Variations in the Objective Exchange-Value of Money

1. The Exchange of Present Goods for Future Goods. 2. Economic Calculation and Accountancy.