Re: (OPE-L) Ajit's paper

From: Ian Wright (iwright@GMAIL.COM)
Date: Fri Jun 04 2004 - 18:46:58 EDT

Hi Ajit

Thanks for your reply on what constitutes a theory of price.

> One must be clear about two entirely
> separate questions: (1) How to explain a phenomenon,
> and (2) How to explain CHANGES in that phenomenon.

You do not have a complete explanation of a phenomenon unless you can
explain how it changes, which is why Sraffa's theory, for example, is
an incomplete theory of prices, assuming that was its intended
purpose. In that theory there is no necessary relation between prices
at time t-1 and prices at time t, something you make a virtue of.

There are systems in which the separation of (1) and (2) is not
possible, for example evolution, or economies in which prices at time
t-1 have causal relations to prices at time t. In this case, it is not
possible to explain the phenomenon without reference to previous
phenomena of the same type.

If you deny the existence of causal relations and retreat to Humean
scepticism at this point then we can acknowledge different and
incommensurable research programmes.

But I hope you agree that whether or not prices at time t+1 affect
prices at time t is an empirical question, not one that can be be
decided by methodological stipulation.

For if it is the case that prices can affect prices then a complete
theory of price must refer to previous prices.

I see no good reason to relegate the determination of price values to
a separate domain of forecasting. A complete theory of prices must
explain the quantitative determination of prices, not simply outline
sets of logical possibilities that have no connection to each other in
time. The fact the forecasting prices requires prior prices should
tell you that price affects price.

Your price theory assumes that prices can be determined at an instant
of time without reference to prices. My simple point is that if prices
are in fact determined by previous prices then this is an incomplete
theory of prices -- the static theory misses a determining factor.
This is what I mean by price epiphenominalism -- the assumption that
prices are only economic outputs, simply measures or indices, rather
than also inputs that function as control signals.

This is the temporal critique of simultaneity.

Of course, it is an interesting question how such a feedback system
originated, and a fully satisfying explanation must address the origin
of prices. I think a theory of prices should be both (1) and (2). You
seem to think that (1) suffices and (2) is "mumbo-jumbo". My logic is
(1) AND (2), yours is (1) NOT (2).

The explanation of origins usually takes the form of a "boot-strap"
argument, in which the first determination of the phenomenon in
question does indeed meet the methodological criteria you outline,
e.g. that prices are not explained in terms of prices, or life is not
explained in terms of life. For what it's worth I think a boot-strap
argument can be provided for the MELT.

Absent a boot-strap it is entirely legitimate to assume prices at a
previous period as a parameter to a model. In fact, if it is the case
that prices cause prices then it is necessary to do so.

> A theory of price does not need to go to the origin of price.
> All it has to do is to is to identify factors other than prices
> that give rise to the price phenomenon.

Under the unstated assumption that price is not a factor that
determines price. But this is an empirical question, not a
methodological one.

> But the theory of price is not about what changes the
> value of prices but rather about what prices are.

Under the unstated assumption that adequate knowledge of what a thing
is does not require knowledge of how a thing changes.

> No. The problem is that you are confusing the nature
> of the problem. If the problem is not about any
> historical process, then how can you insert historical
> process to solve the problem?

I take it as given that things occur in time, and therefore complete
explanations are ultimately historical and causal, not only static and

This is probably a conflict between positivism and critical realism. I
follow Popper and am a pluralist -- it is healthy to have different
philosophical conjectures. The proof is in the pudding etc. But I do
not think your position is "mumbo-jumbo", just incomplete. Maybe you
could be equally magnanimous about TSS theories.


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