The recent wave of two-digit inflation has brought with it a revival of interest in the idea, at least as old as Joseph Lowe [6], and embraced by such great names in the economics profession as Jevons [4], Marshall [7], [8], [9] and Keynes [3], as well as by Milton Friedman [2], that the widespread adoption of cost-of-living escalator clauses could both reduce the allocative and distributive consequences of inflation and make it less painful to reduce its rate at a reasonably rapid pace.1) This paper examines one well-defined aspect of indexation. It asks the question: Is an indexed economy more or less stable than an unindexed economy? Additionally, does it matter whether indexation applies only to interest rates, or only to wages, or whether it is applied in both of these areas? Does it make any difference whether money is indexed in the sense that interest is paid on money balances equal to the rate of inflation?2) The analysis is conducted purely in a priori terms but is based upon a model which it may be claimed at least has a good deal of empirical evidence in its support.3) We must however, be cautious not to claim too much for the results in the absence of hard empirical evidence on how an indexed economy actually behaves. Further, at least in this version of the paper, interest focuses only upon the types of dynamic adjustment paths followed by the rate of inflation and the state of overall demand under alternative well-defined control regimes. It would be more useful to generate welfare measures of the alternative regimes as part of an overall exercise in judging relative desirability.