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CHAPTER 8 1

THE THEORY OE COMPARISONS OPPURCHASING POWER

(i.) The Meaning op Comparisons opPurchasing Power

When the composite commodity representative ofexpenditure is stable in its constitution for differentclasses and different situations, and tastes are un-changed, comparisons of Purchasing Power raise notheoretical difficulty. To prepare a series of index-numbers of the price of a specified composite com-modity over a series of positions in time or placeinvolves no problem beyond the practical one ofobtaining a series of reliable price quotations forindividual commodities.

In fact, however, the composite commodities re-presentative of the actual expenditure of moneyincomes are not stable in their constitution as betweendifferent places, times or groups. They are unstablefor three reasons—either (1) because the need whichthe object of expenditure is intended to satisfy, i.e.the purpose of the expenditure, varies, or (2) becausethe efficiency of the object of expenditure to attainits purpose varies, or (3) because there is a changein what distribution of expenditure between different

1 This chapter deals with a special problem of somo technical difficulty.It could be omitted by readers who are in haste to reach monetaryproblems proper.

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