Adam Smith and the Labor Theory of Value: A Muddled Legacy Revisited
The great Scottish philosopher and economist, Adam Smith, situates himself within a complex and often contradictory legacy of value determination. His seminal work, The Wealth of Nations, published in 1776, is often referenced as a foundational text in understanding economic principles. However, when it comes to the labor theory of value, a detailed examination reveals a more nuanced and less unified stance.
Smith's Acknowledgment of Labor Value
While Adam Smith is frequently hailed as a supporter of the labor theory of value, he does not fully adhere to it as later economists like Karl Marx might. Smith introduces the idea that the value of a good is influenced by the amount of labor needed to produce it. But he also recognizes that value is conditioned by various other factors such as supply and demand.
Smith’s idea is encapsulated in the statement, ‘It is the value of labor… is equal to the quantity of which it enables him to command.’ He differentiates between materialized labor, the value embodied in a commodity, and living labor, the actual labor expended by individuals. This dual understanding of value complicates the application of the labor theory.
Contradictions in Smith's Theory
Smith’s writings are strewn with contradictions regarding the labor theory of value. He writes in Book 1, Chapter 6: ‘In that early and rude state of society which precedes both the accumulation of stock and the appropriation of land, the proportion between the quantities of labour necessary for acquiring different objects seems to be the only circumstance which can afford any rule for exchanging them for one another.’ This suggests a time where the labor input directly correlates with the value of a good.
However, Smith does not explicitly state whether this early form of value determination persists in more developed societies. Instead, he introduces the concept of accumulation of stocks and the command of labor. This shift introduces a new concept where the value of a commodity is determined by the resources (including the labor) that it can command, not just the labor time required to produce it.
The Role of Division of Labor
Smith’s theory of value is deeply intertwined with his understanding of the division of labor. He credits the division of labor with increasing the wealth of nations. Yet, he fails to recognize that the division of labor is itself a result of a historical process—a particular social form of production.
Smith’s methodology and assumptions about human nature obscure his understanding of the real source of value. He assumes that the division of labor naturally occurs through the ‘natural propensity of man’ to trade, rather than understanding it as a social phenomenon shaped by historical conditions.
Implications and Contradictions
Smith’s dual conception of value—where value is influenced by living labor and materialized labor—leads to significant contradictions. On one hand, labor is seen as a key component of value. On the other, the materialized labor under one’s command becomes a source of value, overshadowing the living labor expended.
Smith’s inability to reconcile these concepts has produced a moot point in the academic discourse. On one side, those on the right focus narrowly on the labor commanded by materialized resources. On the other, those on the left concentrate on the labor expended as a value-determining factor, both disregarding the complexity of Smith’s own theory.
Redefining Value in Economic Theory
Smith’s grappling with the labor theory of value has left a lasting impact on economic thought. While he does offer a starting point, his theories are better understood as a stepping stone rather than a singular, unifying framework.
Ultimately, Smith’s work highlights the necessity of a critical, multi-faceted approach to value determination. His writings challenge economists and philosophers to question the inherent assumptions of value and propose more nuanced and historically grounded theories.