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Comment by astine | Hacker News Reader

Smith was attempting the understand the nature of value and where prices came from and concluded that labor, which in enlightenment thinking was commonly seen at the source of all value (al la John Locke,) must be the common denominator. His evidence for this was that price correlated more strongly with the amount of labor that went into a good than with any other good. (He has an interesting analysis of the relative merits of rents paid in grain vs silver to this effect.) Riccardo built on this idea and attempted to show that labor and price were strongly correlated across the board. Marx later came along and demonstrated that that correlation didn't exist and that price didn't match labor quantity at all. However, instead of throwing out theory after showing how it didn't match evidence, he instead decided that the theory was totally fine, and instead it was in fact reality that must be wrong. Marx's approach to this is a bit backwards, IMHO.

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>Marx later came along and demonstrated that that correlation didn't exist and that price didn't match labor quantity at all.

The full theory of prices is only explained by Marx in the context of competing capitals, and the full development of M-C-M', but Marx does clearly accord correspondance between values and prices, even if they're not the same thing, and they're at different levels of abstraction. Marx does offer an argument for why labour is taken as the substance of value (and why socially necessary labour time is its magnitude) - and it's all developed further in the analysis of money. Yes, "labour" doesn't correlate with price in Marx's schema, but the "amount" of abstract labour, determined by the socially necessary labour time required to reproduce a commodity, does.

Shaikh and Tonak show that in the case of freely reproducible commodities, excluding things such as natural resources and land (covered in the theory of rent instead), some empirical research does show correspondance between labour-values and prices in subsets of the economy where it can be measured.

Marx's theory of exploitation requires a correspondance between wages (as money) and value (the product of the labour process). It wasn't as though Marx saw an inconsistency and ran with the theory anyway. Unfortunately for his detractors, the same arguments since Bohm-Bawerk have been repeated since they were made despite adequate refutation by those who hold to Marx's "LTV".

"Marx does offer an argument for why labour is taken as the substance of value"

The problem here is that we're talking about Smith's LTV and not Marx's. Marx may provide his own reasons for believing in the LTV but he disproved Smith's. So the fact that Marx had these reasons are irrelevant if we're trying to justify Smith's adherence.

Though, it is worth pointing out Marx did develop his LTV in part by reading the likes of Smith and Ricardo. The reasons he gives for the LTV in Capital are absent in A Contribution to the Critique of Political Economy in which he merely takes LTV as a given. Actually, that's not quite right, he quotes Smith, Ricardo, and Franklin among others in support of LTV so it's my conjecture that he in fact did see an inconsistency and run with the theory anyway. It was only later in his career that he felt the need to justify that decision.

>Actually, that's not quite right, he quotes Smith, Ricardo, and Franklin among others in support of LTV so it's my conjecture that he in fact did see an inconsistency and run with the theory anyway.

Of course, but his quotation is both praising and damning; he believed that he resolved the issue with the dual character of labour power, a qualitatively special commodity, to preserve the integrity of the theory, which previously failed to explain the origin of profits in a capitalist economy. He takes his critique of political economy from the rare gems of insight developed previously (by Smith and Ricardo). His criticism was that the theory as developed in classical political economy is inconsistent, but not inconsistent in the dimension you earlier pointed out - that prices do not match up to labour values. He took that part for granted.

Smith's work has holes, at least according to Marx, but the insight he developed, labour being the substance of value (more precisely, exchange value) was crucial to Marx's development of the theory. My point is that the theories can't be lumped together, since Marx presents such a radical break from Ricardo (and thereby Smith).

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