On the meaning of real value and quantity indices

Abstract

This article deals with the interpretation of elementary and aggregate quantity and real value indices. Real value indices are defined as the product of quantity and real price indices. In national accounts, deflated (constant prices) values are measures of quantities and, consequently, their widespread interpretation as real values is criticized. Aggregate indices of quantities based on modern index number theory are measures that involve real prices and are interpreted here as real value indices. Their interpretation as "volume" indices is criticized. Real values of distinct commodities are always trivially additive similarly to nominal values while quantities of these commodities never are except under restrictive assumptions. The paper argues, furthermore, that additivity is a somewhat irrelevant issue in economics. Finally, real shares are shown to be equal to nominal shares and, accordingly, the habit of using constant prices shares is also criticized.