Adam Smith and David Ricardo’s labor Theory of Value
The labor theories of value were generated in response to the quest to determine what constitutes the price or value of a commodity, in other words, what renders value to a commodity? Classical theorists like Smith and Ricardo opine that a commodity derives its value from labor that goes into its production. In the labor theory of value, the amount of labor necessary to produce a given commodity was considered the 1“common denominator”. And as an extension of the value theory, labor itself is essentially a commodity. Like all other things, labor is bought and sold (for wages) and has a natural and market price. The natural price of labor is that price which is necessary to enable the laborer, one with another, to subsist and to perpetuate their race without either increase or diminution (iron law of wages).
I will first present Smith’s labor theory of value, followed by Ricardo’s labor theory of value, in essence because it served as the basis of Ricardo’s labor theory of value. In fact Ricardo’s labor theory of value went hand in hand with his critique of Smith’s labor theory.
Smith Labor Theory of Value:
The labor theory of value was a by-product of Adam
Their labor theory of value was also instrumental in laying down economic laws. Consequently, labor, capital and land figure in the value or price if the commodity. Ricardo"tms Labor Theory of Value:Ricardo adopted Smith"tms abandoned labor hypothesis and further advanced it. It is from this analysis that his discussion of value springs. Unlike Smith (who applied his labor theory of value only to the ""early and rude state of society"tm"tm, Ricardo applied his labor theory of value to and advanced economy. It was in the workshop or the factory, not the marketplace, that goods acquired their particular values. 6In terms of methodology, both Smith and Ricardo followed the "simple to complex"tm ideology that is, they both attempted to work upwards from concepts such as labor, division of labor, supply demand, use value, exchange value etc and build towards the complex concepts such as the wealth of nation and accumulation of wealth. In other words, the real worth of a commodity is its power of purchasing labor itself, as distinct from its power of purchasing the product of labor. wages is, of course subject to short run market variations. He accepted the central classical idea that value depended upon the quantity of labor necessary for production which could be calculated by time (4""Possessing utility, commodities derive their power from two sources: from scarcity and from the quantity of labor required to obtain"tm"tm). Ricardo recognized this weakness and criticized Smith for failing to note the difference between the value of a commodity determined by labor and the value of labor, which is just another commodity and whose price- i. Second, according to them value lies in the conditions of production. However both had different reasons for this notion. Smith proposed a labor cost and labor command theory. In his analysis of society, Smith observed that in a civilized society each laborer works for and is dependent upon the labor of others, in other words, division of labor regulates socio-economic relations.