Adam Smith on labour and value: challenging the standard interpretation

This paper was presented at the Seminars of the Department of Foundations of Economic Analysis I, University of the Basque Country in September 2004.

This paper has two parts. In the first I critically analyze Smith’s refutation of the labor theory of value in book I, chapter 6 of his “Wealth of Nations”. My thesis is that Smith’s refutation is unsound and that Ricardo and Marx rightly saw why. In the second part I discuss Blaug’s critique of the Ricardo-Marx refutation of Smith. According to Blaug, Ricardo and Marx fail to understand Smith. I disagree with Blaug and hold, first, that he has not rightly understood the Ricardo-Marx refutation of Smith and, secondly, that this refutation is conclusive. Interestingly, the view that Smith’s refutation of the labor theory of value is sound dominates current History of Economics which, surprisingly, does not pay much attention to the Ricardo-Marx refutation. Blaug’s textbook is an exception and defends Smith from the Ricardo-Marx attack. In this paper, I want to rescue the Ricardo-Marx refutation of Smith from oblivion and explain why it is correct.