The Problem of Aggregation

Abstract

Economic theories are frequently expressed in aggregate terms, with propositions related to such aggregates as capital, labor, producer’s goods and consumer’s goods, particularly if these theories are to find quantitative expression of their structure or serve as qualitative guides to economic policy. It is Inconvenient to think in terms of a very large number of components of an economic system. For this reason a Robinson Crusoe type of economic theory was invented, but these contructions have not been entirely convincing and, until recently, economists have contented themselves with tacitly assuming that theories can justifiably be constructed in terms of aggregates of economic quantities by reasoning in terms of single quantity prototypes of these aggregates. The quantitative expression of such theories of aggregates has been made in terms of index number measurement of the aggregates, defining the prototype variable as some average of the micro-economic components of the aggregate which it represents.