Note 208 — Chapter XXII · CURRENCY, BANKING, AND CREDIT

For this reason it is often said that gold is not a good measure of deferred payments. For example, if somebody were to give you a note for a thousand dollars, payable five years from now in gold coin, the amount of goods which you will be able to buy with the proceeds of this note when it is paid may be much greater, or much less, than what you could buy today. Thus you would get your money back, but it would not have the same purchasing power, and purchasing power is what counts. To determine the actual purchasing power of gold at different dates, figures known as “index numbers” are compiled by various economic organizations. Index numbers are compiled in this way: Take a certain amount of various things which are in common use, say a barrel of flour, ten pounds of butter, a bushel of potatoes, so much steel, leather, lumber, and other commodities,—make the list long enough to cover the general range of prices. Add together the current prices of these things today and you have an index number. Ten years from now, if you take exactly the same amounts of exactly the same commodities and add together the prices, you will have another index number. By comparing them you can say that the purchasing power of money has gone up or gone down, as the case may be. The index number more than doubled during the years 1914 to 1919; that is to say, the purchasing power of money was cut in two.