CHAPTER II
ADAM SMITH’S PHILOSOPHICAL OR PRIMITIVE ACCOUNT OF VALUE.
1. There is a veritable multiplicity of explanations of value in the _Wealth of Nations_, which makes a history of Adam Smith’s views on this subject extremely difficult writing. Many a wise or philosophical sort of observation may be correct in a general way, or largely true, and yet not be precisely true. Perhaps the greater part of what Adam Smith has said on the nature of value consists of reflections of this kind, and the student of his text can never be certain that he really planned to describe the laws of value with that precision which modern theory at least hopes to attain. Still there are some exact theorems laid down. The language in which these are expressed is uniformly flowing and makes good reading; but it seems to be more an eloquent appeal against the shallow mercantilist view of wealth, than an attempt at a painstaking analysis of the facts of value. The following thoroughly typical passage from the chapter, “Of the Real and Nominal Price of Commodities, or of their Price in Labor and their Price in Money,” is truly a call to people to look away from money as the sole measure of wealth and regard the real source of wealth. But in spite of this it happens to end in a precise proposition or theory of value:
“Wealth, as Mr. Hobbes says, is power. But the person who either acquires, or succeeds to a great fortune, does not necessarily acquire or succeed to any political power, either civil or military.... The power which that possession immediately and directly conveys to him, is the power of purchasing, a certain command over all the labour, or over all the produce of labour which is then in the market. His fortune is greater or less, precisely in proportion to the extent of, his power; or to the quantity either of other men’s labour, or, what is the same thing, of the produce of other men’s labour, which it enables him to purchase or command. The exchangeable value of everything must always be precisely equal to the extent of this power which it conveys to its owner.”[8]
From which Adam Smith concludes that labor is “the real measure of the exchangeable value of all commodities.” The exact meaning of the conclusion, it must be observed, is not plain. If “exchangeable value” meant mere exchange value in the modern sense—the power of a good to exchange for some quantity of another good objectively measured in weight, volume, or length—then money would afford a measure of this value quite as reliable as labor and far more convenient. What is intended by “exchangeable value” is a question we may approach later, but whatever exact meaning we take for this term, we find that the series of general observations preceding the conclusion does not prove this conclusion as a precise proposition. This passage is typical of the chapter. Painstaking study of Smith’s theory or theories of value is also made difficult by occasional lapses into very loose terminology. For an instance, we find the sentence, “equal quantities of labor, at all times and places, may be said to be of equal value to the laborer.”[9] The context shows that, in all probability, value here means _disutility_.[10]
The several different minor theories of value given by Adam Smith are not woven into a whole by him. The student of his views approaches his great work with a respect that amounts to awe, and it takes time to force himself to the conclusion that there is a part of the _Wealth of Nations_ which, though profoundly suggestive, is not entirely consistent. The attempt, instinctively made by the commentator, to find a hidden consistency behind the various incompatible utterances, to discover a hypothesis upon which the contradictions may be declared apparent only, is, according to the belief of the writer, fore-doomed to complete failure.
Within the plurality of explanations of value two main divisions are discernible, the first contained in Chapter V, and the second in Chapters VI and VII of Book I.[11] These are the “philosophical” and the “empirical” accounts distinguished in the first chapter of this essay. The first of these is in its place stated in general terms, as if unconditionally true, but when the empirical account is reached, a considerable part of what had been said previously is restricted to “that early and rude state of society which precedes both the accumulation of stock and the appropriation of land.”[12] For this reason what has been called the “philosophical,” may, in the case of Adam Smith, also be called the “primitive” account of value.
2. Preparatory to taking up the philosophical account, a few words on the use of the terms labor and value are pertinent. The word _labor_, now as formerly, denotes really two distinct, though related, things. One is the _productive power_ of human beings. For instance, labor and natural agents are called factors in production, or it is said that the entrepreneur purchases labor. The other is the _disutility_ or _discomfort_ endured by men in the course of production, as in the sentence: “This article has cost me much labor.”[13] Productive power may be accompanied by no disutility, or by moderate or high disutility, according to circumstances. Labor is used in both senses by Adam Smith. As for the word _value_, Smith explains at the outset that the term has two meanings, “value in use” and “value in exchange,” and restricts his investigations to the principles of the “exchangeable value.” This is defined as the “power of purchasing other goods” which an object “conveys” to its owner.[14] But Adam Smith does not explain nor appear to realize that he uses the term “exchangeable value” in two senses. When he asserts that the “real worth” of anything to a man “is the toil and trouble which it can save himself, and which it can impose on other people,” and that therefore labor is the real measure of the “exchangeable value of all commodities;” “exchangeable value” means something other than mere purchasing power. Writing nearly a century later, Menger said that value is that significance (_Bedeutung_) which a good attains in our estimation when we feel the satisfaction of some want to be _conditioned_ upon it. This is “_esteem_ value,” or value as _Bedeutung_. Smith’s concept, of value as “real worth,” which he has miscalled “exchangeable” value, is something analogous to this. But Smith finds the significance in labor instead of in satisfaction.[15]
3. Turning now directly to the “philosophical” account, we find the multiplicity of Adam Smith’s explanations of value illustrated once more by the fact that within this chapter he suggests two distinct labor standards. One is given as a _regulator_ of value, a something which quantitatively governs value. The other is merely a _measure_ of value. There is no adequate discussion of the mutual relations of the two. Both appear in the following sentence:
“What everything is 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 on other people.”[16]
The “toil” saved “to himself” must be the labor cost of reproduction, not distinguished by Smith from cost of production. The two standards are asserted separately. In an early and rude state of society,
“the proportion between the quantities of labour necessary for acquiring different objects seems to be the only circumstance which can afford any rule for exchanging them for one another.”[17]
And
“at all times and places, that is dear ... which it costs much labour to acquire.”[18]
And again:
“The value of any commodity to the person who possesses it [and wishes to exchange it] is equal to the quantity of labour which it enables him to purchase or command. Labour, therefore, is the real measure of the exchangeable value of all commodities.”[19]
The first of these, in accordance with which it is asserted that value is governed (in the philosophical primitive conditions) by cost in labor, may be called the _labor-cost standard_. The second finds a convenient name as the _labor-command standard_.[20] The two play separate and important parts in the subsequent history of the labor theory of value. Ricardo adopted the labor-cost standard as applicable to the conditions of advanced or capitalistic society and repudiated the labor-command measure. Malthus, on the contrary, defended the latter and rejected the former.[21]
4. Since the amount of the value of a good is asserted to bear certain definite relations to the amount of labor it costs or commands, it is a very proper question to inquire how quantity of labor is measured in any particular case. Adam Smith remarks that the quantity of money for which a good can be exchanged is “a plain palpable object,” but that the quantity of labor which it commands, indirectly through the use of money is “an abstract notion, which, though it can be made sufficiently intelligible, it (_sic_) is not altogether so natural and obvious.”[22] He suggests, in that most excellent and familiar Smithian sentence, that the proportions in which different concrete kinds of labor exchange (or count for quantity of labor in general or in the abstract) are
“adjusted not by any accurate measure, but by the higgling and bargaining of the market, according to that sort of rough equality which, though not exact, is sufficient for carrying on the business of common life.”[23]
Nevertheless there are certain principles which enable us to define quantity of labor in a general way. Time alone spent at a task does not determine the quantity of labor put forth. The different degrees of hardship endured and of ingenuity exercised in different employments must also be considered.
If we should assume for the moment that there were exact units of disutility and skill as of time, Adam Smith’s theory would signify that the quantity of labor in any particular case is measured by time units weighted with units of disutility and of skill. The amount of two different kinds of labor commanded in exchange by any commodity depends upon the wages commonly earned at these kinds of labor. If a certain commodity, worth such and such a sum of money, commands in exchange one day of labor in employment A and two days in employment B, Adam Smith would be forced to assume that one day of A is the same quantity of labor as two days of B. At bottom, then, the theory means that one day of A is the same quantity of labor as two days of B, because these two pieces of labor get the same wages.
Taking it for granted that the amount of wages paid (under competitive conditions) is a true test of the _quantity_ of labor in any given concrete task, we shall find some further speculation on this question if we turn to the famous chapter upon the inequality of wages in different employments.[24] In this chapter there is a suggestion that the extra reward for skilled labor is a disguised payment for superior disutility. The following analogy drawn between skill and a machine has been used by many later writers:
“When any expensive machine is erected, the extraordinary work to be performed by it before it is worn out, it must be expected, will replace the capital laid out upon it, with at least the ordinary profits. A man educated at the expense of much labour and time to any of those employments which require extraordinary dexterity and skill, may be compared to one of those expensive machines. The work which he learns to perform, it must be expected, over and above the usual wages of common labour, will replace to him the whole expense of his education, with at least the ordinary profits of an equally valuable capital.... The difference between the wages of skilled labour and those of common labour is founded upon this principle.”[25]
Thus skill represents disutility incurred in its acquisition, and the surplus reward to skill is virtually reward to disutility in a form bearing analogies to interest. This is for acquired skill. What is to be said of inborn skill, of native superior talents? This question apparently escapes Adam Smith. Uniformly, the tacit assumption underlying his thought seems to be that of the inborn equality of powers in men. Keeping this assumption in mind, we see that Smith’s view amounts to the theory that all occupations are about equally well rewarded, all things considered. Higher wages are paid only where there is more labor, ultimately in the sense of _disutility_. The _inequalities_ of wages are such only in proportion to the _time_ of labor.[26]
To give a mid-chapter summary of results—put together by ourselves rather than by Smith—if the exchange values of goods are to be governed by the quantity of labor which they have cost, and the “real worth” of goods is to be measured either by the quantity of labor they have cost or by that which they can command in exchange, there must be some means of defining the _quantity_ of labor in different employments. Adam Smith has made this depend, in the first instance, upon time compounded with amounts of disutility and skill. But he has further suggested that the element of skill really represents a past disutility. The principal assumption involved is that all occupations are competed for by men born equal in efficiency. If he did not clearly avoid the appearance of laying down hard and fast principles, we could conclude that he meant _quantity of disutility_ by quantity of labor.
5. The dictum that labor is the means of measuring the “real worth” of goods does not, I believe, necessarily involve the notion that this measure can be used to compare the value of a good in A.D. 1400 with its value in 1800, or its value in China with that in England. An important part of the chapter on the real and nominal price of commodities is given over to the claim that labor furnishes an “invariable measure” of value in all times and places. Money, the most convenient measure of value in a given time and place, varies in its value in different times and places. But
“Equal quantities of labour, at all times and places, may be said to be of equal value to the labourer. In his ordinary state of health, strength and spirits, in the ordinary degree of his skill and dexterity, he must always lay down the same portion of his ease, his liberty, and his happiness. The price which he pays must always be the same, whatever may be the quantity of goods which he receives in return for it.... Labour alone, therefore, never varying in its own value, is alone the ultimate and real standard by which the value of all commodities can at all times and places be estimated and compared.”[27]
In this passage the misuse of the word value is flagrant, but the meaning is plain. No matter what be the physical quantity of goods which a day of labor either produces or earns as wages, the value of these goods, in the sense of _significance_ to human welfare, is the same, _because_ they cost the same amount of disutility. The person who purchases labor commands it sometimes with a greater and sometimes with a lesser amount of goods:
“It appears to him dear in the one case, and cheap in the other. In reality, however, it is the goods which are cheap in the one case and dear in the other.”[28]
The question of an absolute measure or unit of value (whether it is incapable of solution or not) is one which will be avoided in this essay as far as exhaustive or critical discussion is concerned. The purely statical part of the classical theories of value is best considered in isolation, and furthermore the question of an absolute measure is one of such extreme difficulty that it would require a separate essay of much greater dimensions than this history. Malthus examined the question at great length, and Ricardo paid some attention to it. A brief résumé of the classical discussion of this problem will be found in the note at the end of Chapter VII.
It may be of interest to note that Adam Smith virtually contradicts the assertion made in the citation last given by his statement four lines later. “The labourer is rich or poor, is well or ill rewarded, in proportion to the real ... price of his labour.”[29] This leads to irreconcilable contradictions. Smith has said that a man is rich or poor according to the quantity of labor which his goods enable him to command. That is, the “real value” of a thing is measured by the amount of labor for which it will exchange. Thus a man is rich or poor according to the “real value” of his possessions. A changing physical quantity of goods will have the same “real value” if it command the same quantity of labor. Therefore a given quantity of labor must always exchange for the same amount of _riches_ in the sense of this word employed by Smith. If the real wages of a day of labor must always be the same quantity of riches, how can the laborer be richer or poorer according as the physical quantity of the goods of his real wages increases or diminishes? It might be said that Smith means that the laborer will be richer in life’s enjoyments if he receives a larger physical quantity of goods as wages. But Smith is estopped from such a statement because he has affirmed that the measure of _riches_ is command of labor or cost in labor, that the more or less of riches can be discovered only by the more or less of the labor commanded by the goods composing the riches.[30]
It is necessary to mention Adam Smith’s so-called corn measure of value. Ricardo says, referring to Smith, that “sometimes he speaks of corn, at other times of labour, as a standard measure.”[31] The impression thus given is erroneous. Corn is not selected as a standard coördinate with labor, but is merely singled out from among commodities as being a convenient practical index of the real or labor standard. The practical question of corn-rents was interesting and called for some mention. Smith believed that a given quantity of grain possessed more nearly a constant value in different times than most commodities, merely _because_ corn is likely to remain from age to age in a steady exchange ratio with _labor_.[32]