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  • Print publication year: 1981
  • Online publication date: November 2011



The theory and measurement of economic index numbers presents side by side some of the most difficult and abstruse theory with the most immediately practical issues of everyday measurement. The construction of index numbers is an essential part of all social accounting; without compression and aggregation the mass of quantities and prices thrown up by the economic system would be incomprehensible. Yet from the outset such aggregation has been known to be meaningful only in the context of welfare measurement. But to what extent are welfare-based index numbers practical? In his book on index numbers [56] written for the OEEC (now OECD), Sir Richard Stone addressed the question of whether practical international standards for index number construction could be established in line with his earlier standardized system of national accounts. Sir Richard gives the following reasons why the welfare approach is useful:

First, they give content to such concepts as real consumption which might otherwise be vague and obscure; second, they bring out the fundamental difficulties in establishing empirical correlates to concepts such as real consumption and so help to show what can and what cannot usefully be attempted in the present state of knowledge; finally they show the circumstances in which particular empirical correlates, such as a measure of real consumption which can actually be constructed, are likely to provide a good or a bad approximation to the concepts of the theory.

([56], pp. 18–19)