Adam Smith and the Exchange Value of Commodities
August 5th 2007 10:58
Great minds sometimes get out of step with current times. Reading An Inquiry into the Nature and Causes of the Wealth of Nations by Adam Smith, published in 1776, I found on chapter v this affirmation with respect to the value of a product:
"The value of any commodity, therefore, to the person who possesses it, and who means not to use or consume it himself, but to exchange it for other commodities, is equal to the quantity of labour which it enables him to purchase or command. Labour, therefore, is the real measure of exchangeable value of all commodities."
Adam Smith then goes on to declare that corn is the real measure of exchange for labour. The amount of corn that a worker can use for subsistence is the real value of a portion of time of his labour.
Money, on the other hand, is the nominal value of labour and its products. Money then was made of gold, silver and copper and its value went up and down according to the price of the metals it was made of.
Adam Smith asserts that rents paid in corn were of greater value through the times, due to its greater stability, than the rents paid in silver, which by then had lost two thirds of its value.
But Smith’s insistency that the value of a commodity is equal to the value of the labour input into it is now-a-days hardly acceptable. What about the cost of raw and processed materials input into it and also energy and transportation?
It was this idea – that the exchange value of a commodity fully equals its labour input – that allowed Karl Marx later to declare that the profit of the capitalist, not having a place to be, was stolen from the workers.
Now-a-days, with regards to production, we consider as part of the price of a product its various inputs such as raw materials, energy and any other costs, as well as labour.
Raw materials prices change with the times and the economic circumstances upstream. So does labour which Unions bargain up in good times and bear low in bad ones.
Besides raw materials and labour there is also the profit of the entrepreneur. In a Liberal, capitalist economic system it’s the entrepreneur that originates all business. He must have personal ambition and self-confidence, he must have an ideal to strive to materialise, he must be able to run a financial as well as public risk, he must be able to organise his people and lead them to success. Obviously, he must stand to earn something from this.
Otherwise, I guess, he might just go down to the beach for a nice bronze and a swim, being that in such case we might just not be able to find a job.
Naturally, in the price of a product, besides the value of labour, there must exist also a margin for entrepreneurship.
"The value of any commodity, therefore, to the person who possesses it, and who means not to use or consume it himself, but to exchange it for other commodities, is equal to the quantity of labour which it enables him to purchase or command. Labour, therefore, is the real measure of exchangeable value of all commodities."
Adam Smith then goes on to declare that corn is the real measure of exchange for labour. The amount of corn that a worker can use for subsistence is the real value of a portion of time of his labour.
Money, on the other hand, is the nominal value of labour and its products. Money then was made of gold, silver and copper and its value went up and down according to the price of the metals it was made of.
Adam Smith asserts that rents paid in corn were of greater value through the times, due to its greater stability, than the rents paid in silver, which by then had lost two thirds of its value.
But Smith’s insistency that the value of a commodity is equal to the value of the labour input into it is now-a-days hardly acceptable. What about the cost of raw and processed materials input into it and also energy and transportation?
It was this idea – that the exchange value of a commodity fully equals its labour input – that allowed Karl Marx later to declare that the profit of the capitalist, not having a place to be, was stolen from the workers.
Now-a-days, with regards to production, we consider as part of the price of a product its various inputs such as raw materials, energy and any other costs, as well as labour.
Raw materials prices change with the times and the economic circumstances upstream. So does labour which Unions bargain up in good times and bear low in bad ones.
Besides raw materials and labour there is also the profit of the entrepreneur. In a Liberal, capitalist economic system it’s the entrepreneur that originates all business. He must have personal ambition and self-confidence, he must have an ideal to strive to materialise, he must be able to run a financial as well as public risk, he must be able to organise his people and lead them to success. Obviously, he must stand to earn something from this.
Otherwise, I guess, he might just go down to the beach for a nice bronze and a swim, being that in such case we might just not be able to find a job.
Naturally, in the price of a product, besides the value of labour, there must exist also a margin for entrepreneurship.
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