[OPE-L:5554] Re: Humbug Aggregate Price-Value Correlations

Paul Cockshott (wpc@cs.strath.ac.uk)
Wed, 1 Oct 1997 02:25:31 -0700 (PDT)

[ show plain text ]

> (1) I have strong doubts about the legitimacy of throwing out outliers
> ("peculiar industries, such as the oil industry"). This is acceptable if
> data are suspect, and Tsoulfidis does try to make this claim, but it is
> contradicted by the fact that the large oil industry price-value
difference is
> "a result so common with studies for other countries, see for example the

> results of Alejandro Valle, Paul Cockshott et al. ..., and Ochoa."
> justification for throwing out outliers is that their inclusion or
> is not important to the hypothesis being tested. The problem here -- as
> said before -- is that it is not at all clear what hypothesis is actually

> being tested. Tsoulfidis gives *explanations* for why the oil industry
has a
> large price-value deviation, but it isn't clear that these explanations
> it theoretically justifiable to throw out the result. *If* the
hypothesis is
> that prices = values + some small and random deviation, then throwing out
> outlier is not justified. *If* the hypothesis is that compositions of
> do not affect the deviations, then the appropriate procedure is to leave
> the observation and to *test*, directly, the explanatory impact of value
> compositions on the whole data set.
> In the absence of a clear justification, the studies seem suspect. It
> as if the purpose of the exercise is to get deviations that look small
"by any
> means necessary."
Reason for excluding oil is effect of rent. If one is investigating the
relative accuracies of prices of production and values, which is what we
have done in some papers, then rent is an orthogonal cause of error. It
will produce deviations of oil prices both from values and from prices
of production. Thus in comparing prices of production with values one
is entitled to exclude it from both. The deviations of price from value
produced by rent are not in dispute.
> T: "The big trouble with Klimans regressions is (of course) that he
> only 9 observations (sectors) as he says, and ... his regressions does
> really test the value composition of capital ...."
> I accept the latter point. Still, the regression was sufficient to show
> we can reject the hypothesis that price-value ratios are random, which
was the
> underlying point.

Reducing the number of sectors will inevitably reduce the dispersion of
the ratios both of prices/values and prices/prices of production, by the
law of large numbers. The greater the degree of aggregation in your data,
the less the apparent randomness will be.

> Note that the 9 sectors are just a less disaggregated version of the data
> others have used.
> It seems to me that the paucity of degrees of freedom makes the results
> *stronger* -- if you can reject the null hypothesis that value
> don't affect the price-value ratios when you have only 7 d.f., that is
> a stronger result than if you had 10,000 d.f., since in the latter case
even a
> coefficient that differed from 0 by the tiniest bit would permit
rejection of
> the null hypothesis.
We do not dispute that organic composition of capital produces a
tendancy for industries with high organic composition to sell above their
values. The conclusion of our paper on whether Marx needed to transform

"The data seem to indiacate that some partial equalisation of the rate
of profit is going on. Note that by this we do not mean simply that
the equalisation of the rate of profit is subject to random disturbance;
rather, we mean that reality seems to fall roughly half way between the
simple labour theory of value and the theory of prices of production-half
way that is, between Volumes I and III of Capital! There is a negative
correlation between organic composition and profit rates: this is what
would be predicted on the basis of the simple labour theory of value. But
there is also a significant positive correlation between organic
and the rate of surplus value ( expressed in terms of money ): this
is predicted by the theory of prices of production. Thus, while there
seems to be some tendency for capitals with higher than average organic
composition fo realise a higher rate of surplus value, this effect is not
strong enough to 'compensate' fully for their higher proportion
of constant capital".

You have reproduced, on a somewhat weaker statistical basis, the finding
that we reported in our paper. If you wish to criticise it you would be
as well to be clear exactly what the paper claims.