Classical Theory of Value

Efforts to define, measure, and regulate value are the cornerstone of classical economics. Without a theory of value, there would be no hope in understanding the relationship between the obvious and everyday activities of economic life and some inner structure regulating them.

The classical theory of value is based upon the notion that labor time put forth in the production of a good is that which determines its exchange value. Due to the fact that all commodities available for exchange necessitate a certain amount of labor for their production, the measure of this labor time will allow the comparison, and monetary exchange of goods. In modern society, the social meaning of value is generally understood as its price, and its clear that the theory of value is very closely linked to the classical theory of price. But there is also the idea of value as determined by the amount of utility an individual gains in the purchase of an object. The distinction to which I’m referring is noted in Adam Smith’s Wealth Of Nations, and agreed upon by David Ricardo and Karl Marx: that of exchange value versus use value. The comparison of the two is analogous to that of the classical labor theory of value and the postclassical utility theory of value.

Adam Smith first presents his theory of value in terms of deer and beaver production in the “rude and early state of society,” preceding the emergence of landlords and capitalists. He says “the proportion between the quantities of labor necessary for acquiring different objects seems to be the only circumstance which can afford any rule for exchanging them for another,” (Chapter VI Book I, Wealth). He describes two hunters, one who can kill a beaver in two hours, and the other who can kill a deer in one. Therefore one beaver should naturally be worth two deer, the produce of two hours is worth double the produce of one hour. This holds true because of the historical setting in which the theory is based, one in which the laborer is the able to keep the fruits of his labor for himself, and is free to use them in exchange.Two additional assumptions Smith makes include the maximizing behavior of the agents, and the disutility of labor. If an individual is producing simply because they enjoy it, it would be unlikely that he or she would want to give it up at all. (Ricardo also considers labor as an act one would rather not perform, “onerous travail,” as described by Heilbroner; this will arise again later as a distinction from Marx’s definition of labor). Here Smith’s theory of value rests on the concept of labor commanded. A good holds value in what it is able to get in exchange, in the labor it is able to purchase, or command, in another good, ie if there is no use for it, then it is worthless. This dependence on the use of an item is similar to the postclassical utility theory of value. This value as determined by labor commanded goes on to be the “center of gravity,” or natural