Price–value deviations: further evidence from input–output data of Japan

Abstract

This paper subjects to empirical testing the labour theory of value using input–output data from the economy of Japan for the years 1970, 1975, 1980, 1985 and 1990. The results of the analysis show that labour values and prices of production are extremely good approximations to market prices. In fact, the proximity of prices of production to market prices is closer than that of labour values, a result which suggests that prices of production constitute more concrete centres of gravitation for market prices. Furthermore, we find that prices of production change as a result of variations in income distribution more often than not in a monotonic way and that in fewer cases they display curvatures, which may even reverse the order between prices of production and values.

Keywords:

• values
• prices of production
• income distribution
• input–output tables

JEL classifications:

• B12
• B14
• C67
• D57

Acknowledgement

I am indebted to Theodore Mariolis for many insightful comments and discussions. I am also grateful to Sean Homer, Aris Papageorgiou, Dimitri Paitaridis and two anonymous referees of this journal for their helpful comments and suggestions.

Notes

1. For a theoretical discussion of the regulating conditions of an industry, see Shaikh (1990) and for applications of the concept to real economies, Shaikh (1995) and Tsoulfidis and Tsaliki (2005). The operationalization of the concept of regulating capital within input–output analysis remains an open and largely unexplored question.

2. This statistic is defined as the average percentage absolute deviation of values from market prices and thus positive and negative deviations do not cancel each other out.

3. Regional input–output tables are constructed on the basis of many heroic assumptions and certainly their reliability may be questioned on issues such as the ones under investigation.

4. The issue of spurious correlation was already raised in the first studies. See for example, Ochoa (1984, 129–133), Petrovic (1987, 207–208). This is the reason why most studies in assessing the proximity of computed prices to market prices use measures of deviations instead of correlation (see Shaikh 1998, 207–208).

5. A project worth pursuing would be the comparison of the computed prices (direct prices and prices of production) derived from the use of simple arithmetic and national income accounts data (for an example of such calculations, see Diaz and Osuna 2006: Table 1, 351) and those derived with the use of linear algebra and input–output data. Such a comparison would help in assessing the differences of the estimating methods as well as of the source of these differences.

6. The input–output tables of Japan are given in terms of billions of yen, that is, a level of output worth 1 billion yen in each sector is selected, which is equivalent to saying that the market price for this output is 1 billion yen.

7. If for example the direct price of an industry is 1.07 and the price of production is 1.05, this means that the deviation of the direct price from the market price is 7% and the deviation of the price of production from the market price is 5%, regardless of whether the market price equals say [euro]1 or [euro]55.

8. In principle, the estimation of labour values requires the matrix of depreciation coefficients. Such a matrix is not directly available in the OECD STAN data base; although it could be constructed by combining the available data on the investment matrices and the vectors of depreciation from the input–output tables (see for example, Ochoa 1984). Unfortunately, the investment matrices for Japan of the OECD STAN data consist of many columns and rows with zero elements which prompted us to abandon the attempt at computation of depreciation matrices following standard procedures.

9. Ideally, prices of production require data on capital stock, whose components include fixed capital stock and circulating capital stock (see Shaikh 1998). The OECD STAN data bases do not include this information and, therefore, we had to restrict ourselves to a flow model. It is interesting to note though that one does not expect qualitatively different results in terms of prices of production in a more complete model, as has been suggested by Ochoa (1984).

10. In Shaikh’s (1998, 241) study, where the ratio of prices of production to values moves in a monotonic way, as the rate of profit increases from zero to its maximum. In this study that includes both flow and stock variables there are only two out of 71 sectors that display reswitching. A closer examination of these two sectors revealed that the price of production‐direct price deviation was negligible, which is equivalent to saying that these two sectors had a capital intensity near the economy’s average. As a consequence, the re‐evaluation of capital in terms of new prices of production could change the characterization of these two industries from capital‐intensive to labour‐intensive and vice versa.