The facts which have been presented in the present chapter should help us to appreciate the difficulty involved in the interpretation of present prices and of price statistics. The market price of any commodity is certain to be the result of at least two sets of circumstances, namely, those which determine the demand and supply of the commodity, and those which determine the demand and supply of gold. In a country which possesses a secondary standard a third set of circumstances enters in, namely, those which determine the depreciation of the paper currency. Suppose, for example, that we are asked to interpret a change which took place in the market price of wheat in the United States between the years 1863 and 1865, the price in the former year, for example, being quoted at $1.10 per bushel and in the latter year at $2.50 per bushel. If we desire to know what caused the great rise in the price of this commodity, we are obliged to investigate, in the first place, the demand and supply of wheat during the period, in the second place, the demand and supply of gold, and in the third place, the depreciation of the government notes which constituted the currency of the period. The change of price may have been due entirely to any one of these sets of causes, but it is more probable that it was due to the operation of all the causes combined. An investigation of this kind is necessarily very difficult. It is not easy to determine at any particular time precisely what is the demand or the supply of a commodity such as wheat. It is still more difficult to determine and accurately measure at any particular time the demand and supply of gold. The depreciation of the notes is also difficult to determine. At the best, in such a case, it is usually possible only to establish a certain probability in favour of one explanation or another, but it is rarely possible to obtain absolute certainty.

The interpretation of certain price statistics presents even greater difficulties. The statistical tables which are usually found in public documents, and upon which interpretations of price changes are based, contain averages of the prices of the commodities in question over a certain period of time and on a particular market. For example, the London Economist publishes annually a statement of the average prices on the London market of twenty-two commodities, and compares the average each year with that of a number of preceding years. At the same time it presents also an average of the prices of the twenty-two commodities, and much use has been made of these statistics in the discussion of monetary questions. It is evident from the facts presented in this chapter that the interpretation of the meaning of the average price of a commodity for a certain period of time is even more difficult than that of a specific quotation for a particular moment. Besides the various considerations mentioned in the preceding paragraph, we have now to struggle with the confusion of averaging a number of such quotations. In the average one cause may offset another, and the meaning of the result can only be obtained by unravelling all of these changes. Suppose, for example, that we average the daily price quotations of wheat for a particular year. One day the price is high as compared with the preceding, another day it is low. The difference is now great, now small. These specific fluctuations, as we have seen, are due to various causes, now affecting the demand and supply of the wheat, now the demand and supply of gold. It is difficult, as we have seen, to measure and unravel these various causes in the case of a specific quotation. How much more difficult is it to solve the problem when we have combined three hundred and sixty-five of these quotations in a single average! If it is excessively difficult to interpret the average price of the individual commodity, how nearly impossible it must be to correctly interpret an average of the prices of a number of commodities.

The purpose of statistics of average prices is usually to indicate changes in the purchasing power of the unit of value. The average of the daily quotations of wheat for a year gives us an idea of how much wheat on the average during the year in question a dollar would buy, and when we combine the prices of twenty-two commodities for a year we have a result which indicates to us the average amount of those twenty-two commodities which a dollar would command during the year. A knowledge of the purchasing power of the unit is useful for many purposes, but it renders little, if any, assistance in the determination of changes in the actual value of commodities or in the actual value of gold. If we wish to determine whether the ratio between the demand and supply of gold or of any other commodity has changed during a series of years, only a minute and careful investigation into the various circumstances which have entered into the determination of said demand and supply will suffice.


On explanations of changes in prices see the references at the end of the next chapter. The nature and history of standards of value are treated in Jevons, ch. iv; section V of Menger's article "Geld" in the Handowrterbuch der Staatswissenschaften and in his Grundsdtze der Volkswirthschaftslehre, ch. viii. On the importance of stability of value in the standard commodity see Walker's Money, Trade, and Industry, ch. iii, and Money, ch. i; Nicholson, pt. I, ch. ii, §§4, 5, and 6; Ross's The Standard of Deferred Payments, Annals for November, 1892. Price statistics and their interpretation are treated in Nicholson, pt. II, ch. vii; Schoenhof's A History of Money and Prices, ch. i; Walsh's The Measurement of General Exchange-Value, especially chs. v, vi, and xiv; Falkner's introduction to the Aldrich Report on Retail Prices and Wages and his The Theory and Practice of Price Statistics in the Publications of the American Statistical Association, v. III, pp. 119-140.