In this post, I destroy Ricardo's criticism of Smith's wheat-based valuation. I expose that it comes from his misunderstanding of the purpose of the wheat value in the first place, and that it is caused ultimately in the shallow belief that money is wealth, which the whole Wealth of Nations was supposed to destroy. Unfortunately, that belief persists to this day, and is even enshrined at the heart of Economic science and in all its equations.
12 Adam Smith said that the value of all things was relative to the amount of labour bestowed on their production. He sometimes used wheat, sometimes labour, as a standard measure.
13 If it were true that worker's reward was always proportional to what he produced, then he could buy other things of equal value. But they are not equal.The measure of value is an invariable standard, whereas the price of commodities varies. Adam Smith, said that the value of gold and silver varies, so he chose wheat or labour as an invariable medium.
14 Gold and silver are subject to fluctuations, but why is wheat exempted?
15 Double the work may be required to produce food and necessaries at one time, than another time, but the worker's reward could be reduced. If the worker's prior wages were nfood and necessaries, he probably could not have subsisted if that amount was reduced. Food and necessaries would have risen 100% or to 2nif it were estimated by the amount of labour needed to produce them. They would not have increased in value, if measured by the amount of labour for which they will exchange.
16 The same is true between countries. In America and Poland, a year's labour will produce much more wheat than in England. But the amount of wheat awarded to the worker is not proportional to the produce in each country.
17 If the worker's shoes and clothing could be produced at 25% of the cost in labour, they would probably fall 75%. But it is not true that:
18 Adam Smith is therefore wrong in saying, "that as labour may sometimesbuy a varying amount of goods, it is their value which varies, not the value of the labour which buys them;" and therefore, "that labour alone 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;"
But he is correct in saying "that the proportion between the amounts of labour needed to acquire objects provides the rules for exchange;" In other words, it is the comparative amount of commodities producedby labour which that determines their relative value, and not the comparative amounts of commodities givento the labourer in exchange for his labour.
19 Thing A's value is different from that of Thing B now, but was the same in the past. Thing A has the same value as Thing X + Thing Y + Thing Z, then and now. Thing B had the same value from the combined values of Thing X + Thing y + Thing Z in the past, but has a different value now. We can infer that the variation is in Thing B. If the cost of producing Thing X, Y, and Z has not changed, then it means that the change happened in the production cost of Thing B.
20If an ounce of gold exchange for fewer commodities, the cause of the change in the value of gold relative to other commodities, was its abundant production, or the fewer labour needed to obtain it.
Similarly, if labour fell in value because of an abundance of labour caused by cheaper wheat and basic goods, then wheat and basic goods have 'fallen' in value because fewer labour was needed to produce them.
Smith and Malthus say no. In the case of the gold, the variation is a fall of its value, because wheat and labour had not changed. As gold commanded fewer of them then all things had remained stationary, and only gold changed. But when wheat and labour fall (measure of value), it is improper to say so or that wheat and labour have remained stationary, and all other things have risen in value.
21 I protest this. The cause of the variation between wheat and other things, is the fewer labour needed to produce it. The variation of wheat and labour is 'a fall in their value', and not a rise in the value of the other things. If I hire a labourer for a week, and pay him 8 shillings instead of ten, the labourer can get more food and necessaries if the value of consumable things fall. This fall [price deflation?] is called a fall in the real value of wages. This is not reconcileable with the true principles of the science. This is unusual for me.
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