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"The real price of every thing, what every thing really costs to the man who wants to acquire it, is the toil and trouble of acquiring it. What every thing is
by scarmig 13y ago
"The real price of every thing, what every thing really costs to the man who wants to acquire it, is the toil and trouble of acquiring it. What every thing is really worth to the man who has acquired it, and who wants to dispose of it or exchange it for something else, is the toil and trouble which it can save to himself, and which it can impose upon other people. What is bought with money or with goods is purchased by labour, as much as what we acquire by the toil of our own body. That money or those goods indeed save us this toil. They contain the value of a certain quantity of labour which we exchange for what is supposed at the time to contain the value of an equal quantity." (TWON, Bk. 1, ch. V, p. 30)
The full answer is a bit more complex than that: it's also true that Smith says contradictory things. I'm not enough of a Smith scholar to give a definitive answer, but it seems that Smith mostly purposed it for rhetorical effect, since it is so compelling on a folk level. Other classical economists like Ricardo bought into it much more heavily as an analytic tool.
- pdonis 13y agoSmith is saying that the value of something to you is the labor it saves you, and the cost of something to you is its opportunity cost: what you have to give up to get it. But the "labor theory of value" says that the cost of something to me should be determined by the labor it costs you, who are trying to sell it to me. That's not the same thing. The statement that "They contain the value of a certain quantity of labour which we exchange for what is supposed at the time to contain the value of an equal quantity" is the closest Smith comes to saying something like the labor theory of value, but note that he says "supposed"--in other words, our intuitive sense is that, on average, equal amounts of labor should produce equal amounts of value. So he's still not saying the same thing as the labor theory of value says; he's talking about an effect of the free market, not how prices should be set in such a market. (And, as you note, the full answer is more complex: for one thing, we have to account for differences in productivity.) If you have any quotes from other classical economists like Ricardo, I'd be interested to see them; my sense is that the labor theory of value is mainly due to later schools of economics, not classical economics.