# [OPE-L:6945] [OPE-L:437] New Evidence on Sectoral Prices and Values

Alejandro Ramos (aramos@btl.net)
Wed, 17 Feb 1999 23:22:58 -0600

>Ale: "Can you perform some test on something like
>
>P/W
>
>directly?"

Drewk:

>I'm not sure. Let me think about it. The obvious answer is no,
>because you need two variables to have a correlation, and P/W is
>only one. On the other hand, you could check the correlation
>between P/W and the value composition of capital, and if you found a
>statistically significant correlation, that would be evidence
>against the labor theory of relative prices. I'll think about it
>some more.

Well, I wasn't thinking in a *correlation* (which obviously needs at least
to variables to be correlated!) but in some kind of measure of "equality".

I mean, imagine we have n sectors and every price is equal to every value,
so that Pj/Wj = 1 for every j. I can add all those ratios ( = n) and divide
them by the amount of observations, i.e. n/n = 1, which means that all of
them are equal. But if they are not equal that ratio is not equal to 1.
Then you may test that ratio statistically, I guess supposing that it has
some probabilistic distribution.

>Ale: "Could you please explain why did you run "log-linear"
>regressions?"

Drewk:

>Oh goody. I get to give an answer that I haven't given since I was
>a teenager: because everyone else does it!
>
>Just as I chose the industries I did in order to replicate the Ochoa
>and Shaikh studies, I also chose the functional form they chose
>because they chose it. (This is also the specification of choice of
>Cockshott and Cottrell.) Of course, they regressed aggregates,
>while I regressed cost-weighted variables.
>
>A secondary reason is that I wanted to bend over backwards to be
>fair to the proponents of the labor theory of relative prices, and
>the log-linear specification gave results that were more favorable
>to their claims than a linear specification. But, of course, not
>favorable enough to make any real difference.

The idea of the log-linear specification is that you have a linear model
but you get the logs of your variables, isn't it? Does this mean that the
ratio of your linear model is actually a measure of "elasticity"? (Am I
right?) However, this should be an elasticity corresponding to the whole
"industry", not to particular commodities. Does this make sense? More
generally, how is solved (by the current literature) of the causality
order? I mean, you can put "values" as independent variable and "prices" as
dependent but you can also put them in reverse order. What does happen with
the correlation in that case? Would this mean that prices "determine" (or
predict?) values?