[OPE-L:5503] Re: Humbug Aggregate Price-Value Correlations

Paul Cockshott (wpc@cs.strath.ac.uk)
Mon, 22 Sep 1997 01:52:41 -0700 (PDT)

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Andrew Kliman
> That was the burden of my earlier post (which of course relied on Alan's
> insights). The sectoral aggregate correlations introduce spurious
> correlation. Because they deal with aggregate prices and values instead
of
> unit prices and values, they pick up differences in industry size. As I
> noted, large industries will have large aggregate prices and large
aggregate
> values, while small industries will have small aggregate prices and small

> aggregate values.

Paul Cockshott
Yes, but this will only be the case if there is a correlation
between prices and values. In what sense are certain industries larger
than others?

One could use a number of different measures. Maybe a big industry
occupies more land area than a small one, maybe it uses more electricity
or maybe it is in the sense that they employ more labour.

This implies that the value of their output will be higher, but, unless
the labour theory of value is being assumed, it does not imply that
the price of their output will be larger. The fact that the price of
their output rises in parallel with the value of their output is itself
evidence of the correlation between price and value at an empirical level.
If you rate industries scale another way, in terms of usage of oil,steel
or electricity, you will find that the correlation between size measured
in this way, and the price of sectoral output is much weaker.

Coefficient of variation of x-content per of output

Coeff of variation
Labour 0.189
Electricity 0.698
Oil 2.156
Iron and steel 1.477
( from Cockshott and Cotterel, Cambridge Journal of Economics 1997,v 21,
p548)