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Money and the Price Level

MONEY AND THE PRICE LEVEL As men developed specialization in their productive activities, they found it necessary to trade their surpluses with one another. Primitive societies accomplished this by barter, a direct exchange of goods for goods. The cumbersome and inefficient nature of this trading technique led to one of mankind's greatest innovations, money. Adam Smith gives a vivid account of its origin.

This blessing is mixed, as Sir Dennis H. Robertson so aptly implies in an imaginary dialogue from his Essays in Monetary Theory. One of the major problems involved in the use of money is the fluctuation which takes place in its value. The meaning of such changes is briefly stated in The Quest for Stability. Another problem involves the measurement of the direction and degree of changes in the value of money. The principal measuring technique developed for this purpose is the index number. Wesley C. Mitchell, the moving spirit in the founding of the National Bureau of Economic Research and famous business cycle analyst, discusses the origin and use of index numbers. Perhaps the best known and most widely used index in the United States today is the Consumers Price Index, popularly called the "Cost of Living Index." The Bureau of Labor Statistics, which is the governmental agency responsible for the preparation and publication of this index, explains it in its bulletin Techniques of Preparing Major B.L.S. Statistical Series.