Smith and the Labour Theory of Value

Chris Dillow’s usually lively Blog (Oxford U and the Investors Chronicle), Stumbling and Mumbling, joins a ‘debate’ started by Brad De Long today on reading Karl Marx. He titles his piece as ‘Reading Marx (and Smith)’.

He writes:

“fretting about the distinction between use-value and exchange value did not start with Marx. Take this:

word value, it is to be observed, has two different meanings, and sometimes expresses the utility of some particular object, and sometimes the power of purchasing other goods which the possession of that object conveys. The one may be called "value in use"; the other, "value in exchange." The things which have the greatest value in use have frequently little or no value in exchange; and, on the contrary, those which have the greatest value in exchange have frequently little or no value in use.

It's Adam Smith (book 1 ch 4 of Wealth of Nations).And this raises a point that really irritates me. Why is it that so many people think Marx was an idiot for subscribing to the labour theory of value, whilst Smith was a genius even though he subscribed to an even naiver version of that theory?But then I know the answer, don't I? Smith's in the right tribe, and Marx is in the wrong one. The fact that both men had great insights, and flaws, is irrelevant. Because what they actually wrote isn't the point, is it?”

Comment
I see his point but cannot agree with his conclusion. For a start, Smith was not the first to draw the use-exchange value distinction. It goes back two millennia, as a glance at the notes to the Glasgow Edition of Wealth of Nations would show. The diamonds –water ‘paradox is mentioned by Plato, it was covered by Pufendorf and before him Grotius, and John Law, Harris, Mandeville (1724) and Cantillon (1734) also wrote about it.

On the wider question of the labour theory of value and Smith’s alleged ‘naïve version of the theory’, careful reading of his chapters on value show he did not subscribe to such a theory for society once people moved from a ‘Rude’ society to agriculture and beyond. I discuss this in detail in my forthcoming work on Adam Smith (Palgrave Macmillan, 2007). That Ricardo and Marx tried to take it further had nothing to do with Smith’s work on the subject.

I cannot agree that ‘what they actually wrote isn’t the point, is it?” It is very much the point. If ideas are attributed to someone, we are entitled to challenge them for what they wrote.

In Rude Society (Smith’s first age of hunters – roughly corresponding to what in Smith’s time was described as ‘savage’, or North American ‘Indians’) the product belonged to the labourer, unambiguously. With agriculture a necessary component of that mode of production is that land becomes property, it being difficult to farm when anybody or their flocks and herds could wander in and eat their fill. Inescapably, property changed the mode of production (shepherding had changed it too to whomsoever owned them).

This was the change that Smith worked on to show how the revenue from the sale of produce was divided among the landlord’s rent (a licence to use his land for farming), the labourer’s wage (for his subsistence) and the undertaker’s profit from providing the seed and implements. Now whether, from this distance looking back you condemn the arrangement as ‘theft’ or whatever, there is no doubt that without private or public property in land (in both cases the ‘owners’ were no the labourers), protected by law, there would have been no development of agriculture, and from that the development of commerce. We know this because, in all cases in the history of humankind, over several millennia, no other system of organisation without property was selected by human societies to arrange for the production and distribution of produce.

But once Smith went down this road, he abandoned a labour theory of value.