Value and Price in Classical Economics: A Summary
Smith, Ricardo and Marx all understood the economy as a decentralized social organism which was self-organized through markets and the prices they established. All three presumed labour mobility and capital mobility.
For all three, the relevant prices for political economic analysis were “natural” prices (Smith and Ricardo), or “prices of production” (Marx), prices at which the rate of profit was equalized. None considered at any moment of time that the rate of profit was actually equalized, so that explanation of prices required a “long period” approach, in which economic laws were laws of tendency.For Smith the social division of labour was organized through the profit-seeking actions of selfish individuals. In the absence of private property in land and means of production, labour mobility implied that a labour theory of value explained natural prices. However, Smith never worked out how a labour theory of value could be applied to the property relations of a capitalist economy to explain rent and profits, and he quickly abandoned it in favour of his adding-up theory.
Ricardo shared Smith’s general vision, but extended the labour theory of value to the determination of natural prices in a capitalist economy in which there was private property both in land and in other non-labour inputs. However, he was unable to do this precisely, and his specification of the labour theory of value must therefore be considered incomplete.
Marx took the vision of a decentralized social organism self-organized through markets and transformed it through a focus on antagonistic class relations in production rather than the individualistic exchange relations of avaricious traders. This he achieved through the development of the distinction between labour and labour-power, which emerged out of the contrast between “commodity exchange” and “capitalist exchange”.
Commodity exchange combined with input mobility entailed an exact labour theory of value. Capitalist exchange combined with input mobility entailed a labour theory of value that was exact only in the labour market and for total value added. However, this was sufficient to explain the fact of exploitation, the rate of exploitation and the overall level of profits as unpaid labour. Individual prices remained qualitatively the bearers of social labour, but quantitatively diverged from labour values because capitalist exchange entailed systemic unequal or non-equivalent exchange.The distinctions the classical political economists discovered, and Marx elaborated, between the phenomena of market prices, the underlying regularity of natural prices, and their connection with the emergent decentralized allocation of labour time enforced by commodity production have far-reaching implications. The distinction between value and price is the window through which we can understand the inner nature of the capitalist economy, and this remains the enduring feature of the classical approach to value and price as it culminated in the work of Marx.
Duncan Foley and Simon Mohun
More on the topic Value and Price in Classical Economics: A Summary:
- Postscript to Classical Economics
- Ricardo’s Theory of Value
- THE APPROACH TO THE ANALYSIS OF PRICE
- Value and distribution
- Introduction
- The Analytical Method of the Classical Economists
- Introduction
- Transactions in which an individual, household, firm, government, or other economic entity (“the buyer”) purchases something (usually with money) from another economic entity (“the seller”) are widespread and familiar events in many societies.
- Main Themes in Marx’s Classical Approach
- The social income