Bill -
(...This captures the effect, for example, of gasoline prices rising more than prices for all other goods, which causes consumers to ‘substitute' by buying less gasoline and more of all other goods...)
Taken to its logical conclusion, the substitution measurement method will reduce to total consumption. Of course the entire exercise is a fiction.
From pg 739, Man, Economy and State, Vol. 2, by M. N. Rothbard -
"...The index-number method of measuring changes in the PPM [ Purchasing Power of Money ] attempts to conjure up some sort of totality of goods whose exchange ratios remain constant among themselves, so that a kind of general averaging will enable a separate measurement of changes in the PPM itself. We have seen, however, that such separation or measurement is impossible..."
Regards, Don |
