Ragnar Frisch on marginal utility and price indexes. The difficult marriage of economic theory and statistics

This paper investigates how Ragnar Frisch has grounded econometrics on a specific link between theoretical measurement and empirical measurement. His work on marginal utility of income offers a good example to illustrate his approach. His attempt at measuring the marginal utility of income in 1926 and again in 1932 in order to determine and estimate the purchasing power of money has stumbled on a conceptual difficulty. What is at stake is the way to give a price to the composite commodity or "general good" representing the consumer's personal income. Roy Allen would show in 1933 that the approximation of the price of the general good by the consumption price index, a technical facility, raises more broadly the question of the definition of composite goods-and the reference basket-necessary to the measurement of the purchasing power of money. This critic would drive Frisch to develop an economic approach to the general index of prices or consumer price index, on the basis of indifference functions.