280 REPORT— 1887. 



in virtue of i?uch an estimate, rule tbat for our purposes the status quo of the 

 system is preserved when we preserve constant some siich quantity as the follow- 

 ing : — The quantity of fluid contained in (a section of) one unit heip-ht of the first 

 chamber + the quantity contained in two unit heights of a second chamber + that 

 of three units for a third chamber, and so on. This definition being introduced, no 

 doubt we may go on pumping in fluid until the initial plenitude is restored. 



Suppose that we had control over only one element of the permeating fluid 

 (the vapour of), a certain metallic substance which, according to undiscovered 

 chemical laws, is apt to be combined in small proportions with large volumes of a 

 sort of gasy material. It might be impossible to predict what amount of inflation 

 would attend the introduction of a certain quantity of metal. The measured 

 depletion of the fluid woidd not correspond to the sought repletion of the metal. 

 We could at best only go on dropping in metal until the depletion ceased to 

 exist. 



Similarly, if one great group of commodities varies pretty uniformly in one 

 direction, and another in a different dh-ection (or even in the same direction, but in 

 a markedly different degree), then the task of restoring the level of prices can no 

 longer be regarded as a purely objective quasitum, a cuirency problem. There is 

 required, indeed, a monetary science much more perfect than we possess in order to 

 adapt the means to our end ; but there is required also utilitarian philosophy tn 

 define the end. 



It Tcill be remembered that these remarks are made in the supposed 

 absence of any condition or hypothesis as to the character and cause 

 of the price-variations. We shall now proceed to entertain such an 

 hypothesis. 



Section VIII. 



"Determination of an Index irrespective of the quantities of commodities; 

 upon the hypothesis that there is a numerous group of articles whose prices 

 vary after the manner of a perfect marlcet, tvith changes affecting the 

 supply of money, (a F.) 



So far we have made no supposition as to the cause of the pheno- 

 menon which is under measurement. As far as we have been concerned 

 there might have been a number of heterogeneous causes, or, what is even 

 more unfavourable to calculation, a few great causes ; as if one large class 

 of prices were heightened according to the law of diminishing returns, 

 while other prices, also forming a large class, were lowered by increased 

 division of labour, and others by improved means of transport. We are 

 now to entertain an hypothesis, namely, that there is an effect capable of 

 being discovered and worth discovering, due to ' ' causes which operate 

 upon all goods whatever,' or at least upon a considerable group of goods ; 

 for instance, the increased quantity, or efBciency, of legal-tender money, 

 or the improvement of money-saving expedients. - 



The simplest hypothesis of this sort is the proposition in the text-books 

 that prices vary inversely with the quantity of money, other things being 

 equal. But we are not restricted to the ' Quantity Theory.' ^ It is suffi- 

 cient for our purpose that there should be a circle of commodities, in- 

 cluding money, such that the equilibrium of exchange between them 

 should continually be readjusted by a comparatively frictionless play of 



• Mill, Pol. Econ. Book III. chap. viii. s. 2. 



'' A good enumeration of causes apt to cause a general variation of prices in the 

 case of Inconvertible currency is made by Bela Foldes in the JaJirhuecher fur Natl. 

 Oelwnomie, 1882. 



3 The discussions at pp. 294, 295 will show how far the writer is from regarding 

 this theory as generally applicable, 



