chapter  IX
9 Pages


From the fact that the sovereign is the unit in which the values of other things are measured, it follows that its own value cannot be stated like that of iron or wheat, by a single figure apparent to all. A change in the value of iron is readily shown by a quotation of its price; a change in the value of the sovereign can be shown only by means of an index number, i.e. a figure showing that it will purchase a greater or smaller quantity of a composite group of goods selected as representative of all. Such an index number will often give ambiguous results, and in any case conveys little to the average business man. While, therefore, any change such ali an increase of supply will, in the case of iron, be immediately

felt in the market and published abroad by a fall of price, a similar variation in the case of the sovereign cannot be readily expressed in a single figure. It is consequently not generally recognized, and does not cause an immediate and universal change in its value in terms of all other goods; in other words, it will result not in an immediate adjustment, but in a slow and irregular fall in the value of the sovereign; that is to say, a slow and irregular rise in general prices. There is a second point. Possible changes in the value of wheat or iron are at least the subject of business discussion; they may in part be foreseen, and so affect the terms of contracts involving future delivery. But, owing to the natural habit of regarding the unit of value as invariable, changes in the purchasing power of the sovereign are frequently not even contemplated, and if they were, the causes on which these changes rest would usually be too obscure to enable them to be adequately taken into account in contracts involving future payments. These three considerations, the variety of causes initiating variations in the purchasing power of the sovereign referred to in the last chapter, the impossibility of adequately foreseeing these changes, and their imperfect recognition by the general public when they are actually occurring, are of especial importance in modern conditions where production takes time and is based largely on contracts involving future payments.