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History of Index Number

The history of price indices began with Welshman Rice Vaughan in 1675 who examined changes in price levels in England over the preceding century by comparing wage labor statutes from different time periods. While considered a forerunner, Vaughan's analysis did not involve calculating an actual index. In 1707, Englishman William Fleetwood created perhaps the first true price index to help an Oxford student argue that the value of an annual income stipulation had changed greatly over 260 years. Fleetwood proposed an index using averaged price relatives and published his findings anonymously in Chronicon Preciosum.

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227 views1 page

History of Index Number

The history of price indices began with Welshman Rice Vaughan in 1675 who examined changes in price levels in England over the preceding century by comparing wage labor statutes from different time periods. While considered a forerunner, Vaughan's analysis did not involve calculating an actual index. In 1707, Englishman William Fleetwood created perhaps the first true price index to help an Oxford student argue that the value of an annual income stipulation had changed greatly over 260 years. Fleetwood proposed an index using averaged price relatives and published his findings anonymously in Chronicon Preciosum.

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HISTORY OF INDEX NUMBER

A price index (plural: ³price indices´ or ³price indexes´) is a normalized average (typically awei g h t ed
average) of prices for a given class ofgoods or services in a given region, during a given interval of
time. It is a statistic designed to help to compare how these prices, taken as a whole, differ between
time periods or geographical locations.

Price indices have several potential uses. For particularly broad indices, the index can be said to

measure the economy's price level or a cost of living. More narrow price indices can help

producers with business plans and pricing. Sometimes, they can be useful in helping to guide

investment.

Some notable price indices include:

 Consumer price index

 Producer price index

 GDP deflator

History of early price indices

No clear consensus has emerged on who created the first price index. The earliest reported research
in this area came from WelshmanRice Vaughan who examined price level change in his 1675 book A
Discourse of Coin and Coinage. Vaughan wanted to separate the inflationary impact of the influx of
precious metals brought by Spain from the New World from the effect due to currency debasement.
Vaughan compared labor statutes from his own time to similar statutes dating back to Edward III.
These statutes set wages for certain tasks and provided a good record of the change in wage levels.
Vaughan reasoned that the market for basic labor did not fluctuate much with time and that a basic
laborers salary would probably buy the same amount of goods in different time periods, so that a
laborer's salary acted as a basket of goods. Vaughan's analysis indicated that price levels in England
had risen six to eightfold over the preceding century

While Vaughan can be considered a forerunner of price index research, his analysis did not actually
involve calculating an index. In 1707 Englishman William Fleetwood created perhaps the first true
price index. An Oxford student asked Fleetwood to help show how prices had changed. The student
stood to lose his fellowship since a fifteenth century stipulation barred students with annual incomes
over five pounds from receiving a fellowship. Fleetwood, who

5 already had an interest in price change, had collected a large amount of price data going back
hundreds of years. Fleetwood proposed an index consisting of averaged price relatives and used his
methods to show that the value of five pounds had changed greatly over the course of 260 years. He
argued on behalf of the Oxford students and published his findings anonymously in a volume entitled
Chronicon Preciosum

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