Evolution of the Theory of Value

In the development of economic theory, there have been three broad approaches to the analysis of value. First, there are the general use theories. These theories are based on an assumption that the value of a commodity is related to the functions for which it may be used. Second, there are the labor theories. The labor theory approach to the analysis of value postulates that value reflects the cost of production, as that cost is measured in terms of absorbed labor. The utility theories are the third approach. The utility approach to the analysis of value postulates that the final increment in demand and supply determines the exchange value of commodities (Dobb, 1975).

The labor theory approach to the analysis of value was the approach of the classical economists. Adam Smith and David Ricardo, both classical economists, contributed to the development of the labor theory of value. Karl Marx developed a labor theory of value that began with a critique of the labor theory of value developed by the classical economists (Blaug, 1987).

This paper focuses on the evolution of the labor theory of value. General use theory and utility theory, as they apply to the value of labor, enter this paper only tangentially. Specifically, the purpose of this paper is to trace the evolution of the labor theory of value from Adam Smith's conception to the concept of Karl M

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d capital. In determining value, Smith (1776, 1978) was also concerned with the differentiation between market and natural prices. Market prices, according to Smith (1776, 1978), are determined by the interaction of supply and demand in the short run, while the natural price is a reflection of long-run costs of production. Smith's (1776, 1978) natural price was assumed to be invariant over time; however, his market prices changed, as short-term demand changed. A commodity's value, thus, was stable over the long run, and represented the wages, rent, and profit components of production costs. In the short run, however, a commodity's value was not necessarily stable. Smith (1776, 1978), however, thought that the division of labor would lower long run costs of production, and that competition would cause market prices to closely parallel natural prices. David Ricardo (1817, 1951) published The Principles of Political Economy and Taxation was published to explain the economic principles which regulated the distribution of economic benefits between land-owners, capitalists, and labor. In the basically agricultural society of the time, these participants were the only ones recognized. Ricardo (1817, 1951) assumed that costs and
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Approximate Word count = 3350
Approximate Pages = 13 (250 words per page)

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