Re: (OPE-L) Ajit's paper

From: ajit sinha (sinha_a99@YAHOO.COM)
Date: Wed Jun 02 2004 - 09:00:24 EDT

--- Ian Wright <iwright@GMAIL.COM> wrote:
> Hi Ajit
> > But these prices are determined by the
> determinants other
> > than prices. That's why it qualifies to be a
> theory of prices. If
> > they determined prices of a commodity in time t on
> the basis
> > of observed prices of the same commodity in time
> t-1, then it
> > would not be a theory of prices but rather be
> simple
> > mumbo-jumbo, which is what TSS is.
> Whatever the precise merits of TSS models your
> methodological
> stipulation that a theory of prices must explain
> prices only by
> reference to phenomena other than prices is
> unjustifiable.
> I can only imagine that such a stipulation derives
> from a static
> conception of reality, in which prices are conceived
> merely as
> economic outputs, rather than being both economic
> outputs and inputs,
> which have causal consequences.
> In any system that supports feedback mechanisms an
> output signal at
> time t can be an input to the mechanism at time t+1.
> This behaviour is
> reguarly expressed in terms of differential or
> difference equations.
> Control engineering is not formulated in terms of
> simultaneous
> equations. If your methdological stipulation was
> applied to other
> domains then the theory of control engineering would
> also be
> "mumbo-jumbo". Again, it is a kind of ascetism to
> maintain that prices
> cannot have causal consequences, but are simply
> output epiphenomena
> that have only a nominal rather than causal role.
> -Ian.
Ian, I think what I'm saying holds even for a causal
theory. A theory of price or for that matter a theory
of anything, say X, is supposed to explain the
phenomenon of X. To say that the value of X in time t
is determined by the given value of X in time t-1 is
not a causal theory that explains the phenomenon of X.
Because in your formulation, it is logical to say that
X in time t depends on the value of X in time (t-2),
since the value of X in time t-1 is explained by the
value of X in time t-2. This logically leads us to
infinite regresson. One will have to answer, how did X
come into being in the first place. And here your
causal explanation must identify a cause other than X.
That's why a theory of X that explains X on the basis
of X is not a theory. If you are doing forcasting etc.
then, of course, it makes sense to take into account
the previous values of the variable. But then
forcasting and theory are two different animals.
Cheers, ajit sinha

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