The Theory of Money and Credit

The problem of measuring the objective exchange value of money and its variations has attracted much more attention than its significance warrants. If all the columns of figures and tables and curves that have been prepared in this connection could perform what has been promised of them, then we should certainly have to agree that the tremendous expenditure of labor upon their construction would not have been in vain. In fact, nothing less has been hoped from them than the solution of the difficult questions connected with the problem of the objective exchange value of money. But it is very well known, and has been almost ever since the methods were discovered, that such aids cannot avail here.

The fact that, in spite of all this, the improvement of methods of calculating index numbers is still worked at most zealously, and that they have even been able to achieve a certain popularity that is otherwise denied to economic investigation, may well appear puzzling. It becomes explicable if we take into account certain peculiarities of the human mind. Like the king in Rückert’s Weisheit des Brahmanen, the layman always tends to seek for formulae that sum up the results of scientific investigation in a few words. But the briefest and most pregnant expression for such summaries is in figures. Simple numerical statement is sought for even where the nature of the case excludes it. The most important results of research in the social sciences leave the multitude apathetic, but any set of figures awakens its interest. Its history becomes a series of dates, its economics a collection of statistical data. No other objection is more often brought against economics by laymen than that there are no economic laws; and if an attempt is made to meet this objection, then almost invariably the request is made that an example of such a law should be named and expounded—as if fragments of systems, whose study demands years of thought on the part of the expert, could be made intelligible to the novice in a few minutes. Only by letting fall morsels of statistics is it possible for the economic theorist to maintain his prestige in the face of questions of this sort.

Great names in the history of economics are associated with various systems of index numbers. Indeed, it was but natural that the best brains should have been the most attracted by this extraordinarily difficult problem. But in vain. Closer investigation shows us how little the inventors of the various index-number methods themselves thought of their attempts, how justly, as a rule, they were able to estimate their importance. He who cares to go to the trouble of demonstrating the uselessness of index numbers for monetary theory and the concrete tasks of monetary policy will be able to select a good proportion of his weapons from the writings of the very men who invented them.