Theories of value by Adam Smith and David Ricardo explain why goods are exchanged for certain amounts of money in the market. Both theorists stated that labor is the basis of all value and that the value of a good can be estimated by the number of labor hours needed to produce it (Clark 1547). Nevertheless, their theories differed in the description of the significance of different types of labor. Smith recognized the equivalence of all types of productive labor and showed that value must necessarily be expressed in exchange proportions and, with sufficiently developed commodity production, – in money (O’Donnell 146). Smith explicitly determined the exchange and use-value of the goods, but he mainly focused on the first concept. Perhaps, Smith implicitly defined the use-value, not as the marginal utility but the full utility, which implies the possibility of a separate good to satisfy the common human need. Therefore, for him, the use-value could not be a condition of the exchange value of the goods.
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At the same time, Ricardo made a clear distinction between the labor expended on the production of a commodity, as well as its determinant value, and the labor that can be purchased for this commodity. Thus, Ricardo used the concept of expended labor as a source of value and, unlike Smith who determined value either by labor expended, or labor purchased, or income, Ricardo consistently emphasized that the source of value can only be labor expended on the production of a given commodity. Moreover, Ricardo denied Smith’s assertion that value is determined by labor expended only in simple commodity production systems and, thus, overcame major contradictions in Smith’s theory.
Clark, David. Encyclopedia of Law and Society: American and Global Perspectives. SAGE Publications, 2007.
O’Donnell, Rory. Adam Smith’s Theory of Value and Distribution: A Reappraisal. Palgrave MacMillan, 2016.