This is the old post that I promissed Andrew in the earlier post.
>>========================================================================
Andrew:
>>A response to Ajit's ope-l 4639.
>>
>>Ajit: "Okay, I'm going to try it again."
>>
>>With, I note, a whole new set of questions. I answered his
>>next-to-last set of questions in my ope-l 4635 (posted by Jerry),
>>at the end of which I wrote: "Can you identify any internal
>>inconsistency in this reasoning, Ajit? If so, please tell us what
>> it is. If not, please state that you cannot."
>______________________
Ajit:
>
>Okay, I'll tell you what I think. Your logic leads to absurdities. In your
system of prices, the current prices are determined by a vector of non-price
determinants and last year's prices and last yesr's prices are determined by
last to last year's prices, and we go down the history till the first human
arrived on this earth. This implies that todays prices are determined or
affected by the prices that prevailed at the dawn of history. And this is an
absurdity. One could say, well there were no prices at the dawn of history.
Well, then when did prices come into being? An impossible question to
answer. To get rid of this absurdity, you introduce a totally arbitrary
element into your system: "Note that, by assumption, we begin with
stationary prices-- P[1995] = P[1994]." On what basis you defend this
"assumption"? Now, let me go straight to your equations to make the point
which your own equations make it for me:
>Andrew:
>>P[1996] = g(X, P[1995])
>>
>>P[1997] = h(X, P[1996])
>>
>>Quite obviously, g and h are different functions.
>>
>>Now, let us imagine that 1995 prices were determined as follows:
>>
>>P[1995] = f(X', P[1994]) = P[1994],
>>
>>where X' is a vector of non-price determinants that differs from X.
>>Note that, by assumption, we begin with stationary prices --
>>P[1995] = P[1994]. I think Ajit would agree that if X and X' differ,
>>P[1995] will not equal P[1996] in general.
>_____________________
Ajit:
>
>Sure, I agree that if X and X' are different then P[1995] will not equal
P[1996]. However, if they were the same, which is what I have been asking
you to assume, they would be the same. Thus, given your assumption, i.e.
P[1994] = P[1995], P[1996] is already known as long as we assume that X's
are held constant. And this has been my point all along. So it turns out
that you do not have a theory of prices, unless you make the absurd claim
that prices at the dawn of history are affecting prices today.
>Cheers, ajit sinha
>