Index numbers are, of course, desired for purposes other than to measure the cost of living. One obvious possibility is to consider some subset of co… - Kenneth Arrow
" "Index numbers are, of course, desired for purposes other than to measure the cost of living. One obvious possibility is to consider some subset of cost-of- living items, such as food. The logic of the preceding argument goes through precisely provided we assume that the distribution of food expenditures in any period among different foods depends only on the total volume of food expenditures and is independent of the prices of other goods, for any given total volume of food expenditures. This does not deny substitution between foods and other commodities, but we assume that the total effect of this substitution is already reflected in the choice of a volume of food expenditures. In a broad way, similar considerations apply to the pricing of producers’ goods, which should be interpreted as reflecting indirectly consumers’ preferences. However, there is undoubtedly a good deal more in the detailed working out of the theory that has never been developed.
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About Kenneth Arrow
Kenneth Joseph Arrow (August 23, 1921 – February 21, 2017) was an American economist, who was Professor Emeritus of Economics in Stanford, and joint winner of the Nobel Memorial Prize in Economics with John Hicks in 1972.
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Kenneth Joseph Arrow
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Kenneth J. Arrow
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Ken Arrow
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Additional quotes by Kenneth Arrow
What can be concluded? We cannot be sure that the principles of democracy and socialism are compatible until we can observe a viable society following both principles. But there is no convincing evidence or reasoning which would argue that a democratic-socialist movement is inherently self-contradictory. Nor need we fear that gradual moves in the direction of increasing government intervention will lead to an irreversible move to “serfdom.”
The conventional view among economists is that education adds to an individual's productivity and therefore increases the market value of his labor. From the viewpoint of formal theory, it does not matter how the student's productivity is increased, but implicitly it is assumed that the student receives cognitive skills through his education. Educators, on the other hand, have long felt that the activity of education is a process of socialization, with the latent content of the process—the acquisition of skills such as the carrying out of assigned tasks, getting along with others, regularity, punctuality, and the like—being at least as important as the manifest objectives of conveying information. This last doctrine has been revived by radical economists, though with a negative rather than a positive valuation. But from the viewpoint of economic theory, the socialization hypothesis is just as much a human capital theory as the cognitive skill acquisition hypothesis. Both hypotheses imply that education supplies skills that lead to higher productivity. I would like to present a very different view. Higher education, in this model, contributes in no way to superior economic performance; it increases neither cognition nor socialization. Instead, higher education serves as a screening device in that it sorts out individuals of differing abilities, thereby conveying information to the purchasers of labor.
The creation of knowledge that constitutes an innovation is in turn dependent on the acquisition and application of existing knowledge; information is an input into the production of information. This background knowledge and the ability to use it are the most important elements of the social context of individually motivated innovation.
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