Making Inferences from Index Numbers (1860–1914)

Abstract

Index numbers are indirect measurements as well as composite quantities that present particular inferential challenges to the measurer and their intended audiences. The early history of the use of index numbers in British economics (ca. 1860–1914) shows that making inferences using this measuring instrument was rife with problems. Economists grappled with multiple “inferential gaps” in order to make inferences from index numbers. The extent to which these gaps could be bridged depended on the theoretical frameworks and measurement strategies used. However, it is also evident that some inferential issues confronting economists were ideological or political in nature. Two case studies are examined, Stanley Jevons’s price index and the Board of Trade’s cost-of-living index, that sharpen the focus on the accuracy of index numbers. What did index numbers really capture about the deterioration of the monetary standard or standard of living of the working classes? By situating the index numbers within the broader ecology in which they were constructed, the article shows that making inferences was not just a heuristic process (one that eliminated gaps by getting the estimations right) but a cognitive one as well (one that people could accept as being “fit for purpose”).