[OPE-L:6231] RE: What is the debate is about?
Ian Hunt (Ian.Hunt@flinders.edu.au)
Fri, 27 Feb 1998 13:24:01 +1030 (CDT)
>A reply to the PIAF:
>
>----------
>From: owner-ope-l@galaxy.csuchico.edu on behalf of Ian Hunt
>Sent: Wednesday, February 25, 1998 9:52 PM
>To: ope-l@galaxy.csuchico.edu
>Subject: RE: [OPE-L] What is the debate is about?
>
>
>Ian: "Andrew's response to the thought experiment is to say that he doesn't
>want to envisage any circumstance in which prices stay constant from one
>period to the next."
>
>Where did I say that?
>
>I thought the challenge was to explain how the input and output prices of
>period 1 can differ even though technology is not changing between periods 1
>and 2, and supplies equal demands.
>
>Now, it seems, Ian wants me to consider circumstances in which output prices
>never change. Fine. Then I must obviously also assume that input prices
>never change, since the output prices of one period are the input prices of
>the next. As I pointed out to Allin, no one disputes the notion that, if you
>begin from a stationary state, and nothing changes subsequently, you'll remain
>in the stationary state. Indeed, this is exactly what the TSS equations
>imply.
>
>So Ian's objection to the TSS interpretation seems to be a non-objection.
>
>
>To summarize:
>
>(a) if the input prices of period 1 differ from the output prices of period 1,
>then, in general, the output prices of period 2 will differ from the output
>prices of period 1; this is true even if technology is the same in both
>periods and there's no imbalance of supply and demand.
>
>(b) if the output prices of periods 1 and 2 are equal, then the input prices
>of both periods will, in general, also be equal, and equal to the output
>prices.
>
>Thus, if you want me to explain how the input and output prices of period 1
>differ, you cannot postulate also that the output prices of periods 1 and 2
>are the same. If you want to postulate that the output prices of periods 1
>and 2 are the same, you cannot demand an explanation for nonexistent
>differences between input and output prices of period 1.
>
>
>The REAL underlying point in all this is as follows. The belief that prices
>must remain constant if technology, etc. are not changing *presupposes* that
>input prices are NOT a determinant of output prices. I.e., it presupposes
>that changes in input prices, ceteris paribus, will not cause changes in
>output prices. But Ian now acknowledges that input prices ARE a determinant
>of output prices: "I agree that they are *a* determinant ...."
>
>
>It seems to me that we agree about everything under discussion. We agree that
>if input prices happen to equal output prices, and nothing else changes, then
>prices will remain stationary. We agree that input prices are determinants of
>output prices. We agree that if the input prices of a period differ from its
>output prices, then the output prices of the next period must differ from the
>output prices of this period, even if all determinants of output prices except
>input prices are constant.
>
>So it is my turn to ask "what is the debate about?"
>
I am not sure that I know what the debate is about either. Perhaps I
misunderstood Andrew's response to my thought experiment. i supposed two
periods across which neither technoilogy nor supply and demand altered.
Andrew's response was to suppose that in a previous period, technology was
different. I then suggested that we extend the assumption of constant
technology, etc backwards, because the point I wanted to make was that if
the output price is constant over at least two successive periods, and I
could not see why this could not happen, then input prices could not differ
from output prices in the way TSS suggests.
Now, it seems that if output prices are constant from one period to the
next, then on the TSS view (if I have understood it) input prices will not
differ from output prices as values differ in magnitude from prices of
production. What IS the debate all about??