Editing Labor theory of value (section)

=== Adam Smith and David Ricardo ===
Adam Smith held that, in a [[Urgesellschaft|primitive society]], the amount of labor put into producing a good determined its exchange value, with exchange value meaning, in this case, the amount of labor a good can purchase. However, according to Smith, in a more advanced society the market price is no longer proportional to labor cost since the value of the good now includes compensation for the owner of the means of production: "The whole produce of labour does not always belong to the labourer. He must in most cases share it with the owner of the stock which employs him."<ref name="Whitaker History and Criticism pp15-16">{{cite book |doi=10.7312/whit91420 |date=1904 |isbn=978-0-231-88365-8 |last1=Whitaker |first1=Albert C. |title=History and Criticism of the Labor Theory of Value in English Political Economy |publisher=Columbia University Press |pages=15–16 }}</ref> According to Whitaker, Smith is claiming that the 'real value' of such a commodity produced in advanced society is measured by the labor which that commodity will command in exchange but "[Smith] disowns what is naturally thought of as the genuine classical labor theory of value, that labor-cost regulates market-value. This theory was Ricardo's, and really his alone."<ref name="Whitaker History and Criticism pp15-16"/>

Classical economist David Ricardo's labor theory of value holds that the [[Value (economics)|value]] of a [[good (economics)|good]] (how much of another good or service it exchanges for in the market) is proportional to how much [[labour (economics)|labor]] was required to produce it, including the labor required to produce the raw materials and machinery used in the process. [[David Ricardo]] stated it as, "The value of a commodity, or the quantity of any other commodity for which it will exchange, depends on the relative quantity of labour which is necessary for its production, and not on the greater or less compensation which is paid for that labour."<ref>{{Cite book |title=On The Principles of Political Economy and Taxation |first=David |last=Ricardo |year=1817 |url=https://www.marxists.org/reference/subject/economics/ricardo/tax/ch01.htm |access-date=August 19, 2020 |via=[[Marxists Internet Archive]]}}</ref> In this connection Ricardo seeks to differentiate the quantity of labour necessary to produce a commodity from the wages paid to the laborers for its production. Therefore, wages did not always increase with the price of a commodity. However, Ricardo was troubled with some deviations in prices from proportionality with the labor required to produce them.<ref>{{cite book |doi=10.1057/978-1-349-95121-5_1054-2 |date=2008 |isbn=978-1-349-95121-5 |last1=Vianello |first1=Fernando |title=The New Palgrave Dictionary of Economics |chapter=Labour Theory of Value |publisher=Palgrave Macmillan UK |location=London |authorlink1=Fernando Vianello |pages=233–246 }}</ref> For example, he said "I cannot get over the difficulty of the wine, which is kept in the cellar for three or four years [i.e., while constantly increasing in exchange value], or that of the oak tree, which perhaps originally had not 2 s. expended on it in the way of labour, and yet comes to be worth £100." (Quoted in Whitaker) Of course, a capitalist economy stabilizes this discrepancy until the value added to aged wine is equal to the cost of storage. If anyone can hold onto a bottle for four years and become rich, that would make it hard to find freshly corked wine. There is also the theory that adding to the price of a [[luxury goods|luxury]] product increases its [[exchange-value]] by mere prestige.

The labor theory as an explanation for value contrasts with the [[subjective theory of value]], which says that value of a good is not determined by how much labor was put into it but by its usefulness in satisfying a want and its scarcity. Ricardo's labor theory of value is not a [[Normative economics|normative]] theory, as are some later forms of the labor theory, such as claims that it is ''immoral'' for an individual to be paid less for his labor than the total revenue that comes from the sales of all the goods he produces.{{fact|date=May 2025}}

It is arguable to what extent these classical theorists held the labor theory of value as it is commonly defined.<ref>{{cite book |doi=10.7312/whit91420 |date=1904 |isbn=978-0-231-88365-8 |last1=Whitaker |first1=Albert C. |title=History and Criticism of the Labor Theory of Value in English Political Economy |publisher=Columbia University Press }}{{pn|date=April 2025}}</ref><ref>{{cite journal |last1=Gordon |first1=Donald F. |title=What Was the Labor Theory of Value? |journal=The American Economic Review |date=1959 |volume=49 |issue=2 |pages=462–472 |jstor=1816138 }}</ref><ref>King, Peter and Ripstein, Arthur. [http://individual.utoronto.ca/pking/unpublished/LTV.pdf "Did Marx Hold a Labor Theory of Value?"] University of Toronto</ref> For instance, [[David Ricardo]] theorized that prices are determined by the amount of labor but found exceptions for which the labor theory could not account. In a letter, he wrote: "I am not satisfied with the explanation I have given of the principles which regulate value." [[Adam Smith]] theorized that the labor theory of value holds true only in the "early and rude state of society" but not in a modern economy where owners of capital are compensated by profit. As a result, "Smith ends up making little use of a labor theory of value."<ref>{{cite book |last1=Canterbery |first1=E. Ray |title=Brief History Of Economics, A: Artful Approaches To The Dismal Science |date=2001 |publisher=World Scientific Publishing Company |isbn=978-981-310-547-8 |pages=52–53 }}</ref>