Money, Banks and Finance in Economic Thought

Rereading Adam Smith on Labor Commanded: Value from different points of view

Andrews David Andrews, State University of New York at Oswego

This paper revisits the question of the quantities of labor commanded and bestowed as standards of value in Adam Smith’s Wealth of Nations. David Ricardo famously criticized Smith’s use of the labor commanded standard of value, claiming that Smith erred by restricting the labor bestowed theory to the “early and rude state of society,” rejecting labor bestowed as a standard of value in the case including capital accumulation and rent and he erred again when he conflated two standards, of treating them mistakenly as if they were equivalent. Marx took Ricardo’s side, endorsing both criticisms, and the same criticisms have dominated the literature since. This essay explores an alternative interpretation according to which both these criticisms miss their target. Smith did not restrict labor bestowed as a standard of value for economies with capital and rent and he did not conflate the two standards. The basic problem seems to have resulted from the different projects that Smith and Ricardo were engaged in. While Ricardo and later writers were concerned to establish the scientifically appropriate standard for measuring value, Smith was concerned with what standards people actually used to measure value. He concluded that different groups of people used different standards. For Ricardo’s purpose it was necessary to settle on a unique measure—just as it would be absurd to do physics without settling the question of how to measure mass. For Smith the multiplicity of standards used by different people is not contradictory. Smith believed that the fact that both groups focused on quantities of labor showed that this was the correct measure of value. Smith associated the labor bestowed standard with those who do not have commodities and want to acquire them and he associated the labor commanded standard with those who possess commodities and want to sell them rather than consume. Smith believed that buyers and sellers used the different standards in both the “early and rude state of society” and later states. In the former, the significance of labor bestowed is easier to see, although even in that case there were some adjustments, as for hardship and skill involved in production, that render relations between the proportions of labor bestowed on various commodities less visible. The same principles continue to operate in civilized society, but the obscurity becomes much greater with the accumulation of capital and full settlement of land, and the relation between labor The two perspectives are merged in the concept of natural price, which expresses a commodity’s worth to the person who brings it to market.

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Keywords: Adam Smith, labor theory of value, natural price

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