This paper discusses Adam Smith's and David Ricardo's view on the labor theory of value. It includes a discussion of the validity of the arguments they present in relation to social and Economic contexts. To the pursuance of this objective, the paper has explored five published articles available both in the internet and as hand copies.
The labor theory of trade supposes that the value of commodity comprises of the labor used in its production. Goods that consume equal amount of time should have the same cost. Adam smith stipulates that the amount of labor used in production of a commodity determines its exchange value in primitive society; however, this change in an advanced society since the exchange value includes the profit for the owner of capital. Ricardo argued that the value of a commodity is proportional to the amount of manual and mechanized labor used to produce it.
Labor theory of value stipulates that the amount of labor needed and used in production of such commodity determines the value of a commodity. Other factors of production do not determine the value of a commodity except those factors that have labor elements. Adam Smith and David Ricardo are associated with the labor theory of trade. The Value in this regards refers to the amount of labor required in production of commodities. The Adam Smith theory of value asserts that a commodity worth is equal to the amount of labor it commands in others. This includes value in trade and value in use. Value in use refers to the utility of a commodity while the value in trade refers to the price in exchange of another commodity. Smith established that labor is the real measure of the price of all commodities. Some opponents of the labor theory of ...
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...th little fixed capital, short life capital or with raw materials that have high turnover.
Adam smith argues that the amount of labor used in production of a commodity determines its exchange value in a primitive society; however, this changes in an advanced society where the exchange value now includes the profit for the owner of capital.
Ricardo’s theory is different from Smith's theory by excluding rent from the costs of production. Ricardo argues against Smith's theory because it only applies when wage is proportional to the amount of production equivalent to the amount of labor commanded and embodied. However, prices of commodities changes over time due to application of new production techniques; this leads to the increase of commodity prices over time. Ricardo points out that the value of a commodity is only equal to its cost of production in the long run.
In the film the factory owner, Roger Wong, is contracted by entities outside of China, from the U.S.A., to manufacture beads for the least cost possible to maximize the greatest profit. This exchange of money for goods is an example of capitalism and global distribution. Capitalism is described by Conley (2008) as “an economic system in which resources are privately owned; investments are determined by private decisions; and prices, production, and the distribution of goods are determined primarily by competition in an unfettered marketplace.” (p.372) Wong agrees to manufacture the beads for a certain amount of money. From this amount, he determines the cost involved in the production such as material, electricity and wages that detract from profit. After these considerations, a workforce is employed.
As you can see, labor and trade are the key importance to modern wealth. Production and trade are not just needed but are essential for a country to survive. Smith makes it ideal for countries to interact and trade. Trade means you get more directs workers into jobs in which they have a comparative advantage, which means more
Correspondingly, each also argued that labor markets are historically unique to capitalism and that an understanding of the process of their creation is crucial to an explanation of the dynamics at play in market economies. To Marx, a constant condition of capitalist production is that producers have more laborers available to them then they have need of at any given time, allowing them to respond flexibly to ebbs and flows in demand for their products ([1867]1978:375). The existence of an excess urban population available for work in factories was made possible by revolutionary improvements in agricultural productivity, enabling a much smaller number of individuals to produce enough food to meet the needs of the population ([1867]1978:416). This process critically weakened the feudal system, giving the former peasants control over their own labor and making it necessary that they sell it to capitalists in order to make a wage ([1867]1978:337). Similarly, Polanyi held that the final step in the development of a market economy, that is a for a self-regulating market to become the dominant economic institution in a society, labor must be made available for purchase by factory owners. Labor, however, can never be a real commodity because it cannot actually be produced for sale on the market through
Adam Smith begins his analysis of the market society with a look at the division of labor. He elaborates on the idea that the division of labor is essential for the growth of a civilization. Smith explains how for example, the production of pins can be done more efficiently with the breaking down and deconstruction of
Within The Wealth of a Nation’s, Smith accredits the nation’s wealth to individuals self-interest. Adam Smith states that self-interest is what controls the behavior of the people and the economy is “led by an invisible hand to promote an end which is no part of his intentions” (Wealth of Nations, Book 1, Chapter 7). For example, a drug dealer does not sell drugs based on good intention. Instead, a drug dealer sells drugs because it generates him or her a profit. If the drug dealer begins to sell low quality drugs at an unreasonable price, then people will not purchase drugs from the dealer. As a result, to maintain customers, it is in the best interest of the drug dealer to sell quality drugs for a reasonable price. Therefore, self-interest is beneficial to all member of society. In the drug dealer scenario, the drug dealer generates a profit and the customer increases his or her utility from the drug. Smith measures wealth as a flow of goods and services, which is based upon the productivity of labor. Smith posits that workers are most productive when there is a division of workers and they engage in specialization. An increase in labor productivity increases a firm’s output and leads to market expansion. To support market expansion, Smith suggests investing in machinery to make workers more productive. Eventually, a firm will increase capital
In Adam Smith’s “Wealth of Nations”, he describes the advancement of division of labor and its benefits. Division of labor means more productivity, time conservation, as well as improves the quality of work amongst the laborers.
The basis of the United States capitalistic economy is the rationality of humans when it comes to bartering. Each person’s mindset is to get as much as they can for what they have through trade. Adam Smith, a Scottish sociologist, sparked the foundation of that economist thought. Smith theorized that with the division of labor, an economy can be perfected. However, an anthropologist named David Graeber disagrees with Smith. Graeber states that nowhere in the history of primitive economies has there been one based off of bartering. Essentially, Smith’s argument supports humans as homo economicus while Graeber’s argument supports the homo reciprocans term. Both theorists have an outstanding epistemology behind them, though Graeber has the benefit
Smith’s text in his book seems to be characterized by fact-heavy tangents, tables and supplementary material that combine hard research with generalities, showing his commitment to give proof for what seem like never-ending observations about the natural way of economics. Smith’s Wealth of Nations Books I and II focus on the idea of the development of division of labor, and describe how each division adds to the fortune of a given society by creating large surpluses, which can be traded or exchanged amongst the members of Labor. The division of labor also fuels technological innovation, by giving a lot of focus to specific tasks, and allowing workers to brainstorm ways to make these tasks quicker or more efficient, increasing maximum output. This, again, adds to efficiency and increases surpluses so that the surplus items may be traded or re-invested somewhere else. Near the end of the case, technologies are likely to improve, foreshadowing them to become even greater efficient.
product he creates. As a result labour is objectified, that is labour becomes the object of
The pivotal second chapter of Adam Smith's Wealth of Nations, "Of the Principle which gives occasion to the Division of Labour," opens with the oft-cited claim that the foundation of modern political economy is the human "propensity to truck, barter, and exchange one thing for another."1 This formulation plays both an analytical and normative role. It offers an anthropological microfoundation for Smith's understanding of how modern commercial societies function as social organizations, which, in turn, provide a venue for the expression and operation of these human proclivities. Together with the equally famous concept of the invisible hand, this sentence defines the central axis of a new science of political economy designed to come to terms with the emergence of a novel object of investigation: economic production and exchange as a distinct, separate, independent sphere of human action. Moreover, it is this domain, the source of wealth, which had become the main organizational principle of modern societies, displacing the once-ascendant positions of theology, morality, and political philosophy.
Ricardo’s labor theory of value states that the exchange value of a reproducible commodity depends on labor time required for production. Labor time includes work done from production of raw materials and capital goods needed to production of the commodity itself. By staging the process, Ricardo felt that it would be easier to establish what caused changes in exchange values over time. Therefore, if the ratio of exchange between commodity A and commodity B rose from 3:1 to 6:5, we would be able to determine the labor time and hence the factors causing the change in exchange values between the two. It should be noted that unlike Smith who gave distinction between primi...
According to Ricardo, the relative value of commodities is proportional to the amount of labor embodied in them, including the labor involved in the production of the capital and extraction of the natural resources. He argued this point, during a time when the LTV was receiving harsh criticism, by developing a theory of rent. A common confutation to the LTV was that agricultural products were largely dependent on the price of rent paid to the landowner, and not the labor involved, since rent was a proportionately large and necessary cost of production. It was also realized that some land was more fertile than other land, making some labor more productive, thereby decreasing the value of the product. Ricardo reasoned that the excess product of the more fertile land was absorbed by an increased rent price, with the least fertile land (producing just enough to cover production costs) having zero rent.
The return on investment in capital is called interest. Enterprise or Entrepreneurship: The fourth factor of production, involving human resources that carry out the functions of raising capital, organizing, managing, bringing together other factors of production, and making fundamental business policy decisions. The entrepreneur is a risk taker.
for the betterment of the economy as Adam Smith argues that an economy shaped by our
When an object is seen as a value in use, it could be appreciated for its properties capable of satisfying human wants, produced by the human labour by changing its natural form into a useful shape. However, when the object becomes a commodity, a price is attached to the object; similarly when human labour is seen as a commodity, then a price is attached to the labour.