ADAM SMITH'S THEORY OF VALUE AND DISTRIBUTION

ADAM SMITH'S THEORY OF VALUE AND DISTRIBUTION

Adam Smith's Theory of Value and Distribution A Reappraisal Rory O'Donnell Economist National Economic and Sodal Council, Dublin Palgrave Macmillan

ISBN 978-1-349-10910-4 ISBN 978-1-349-10908-1 (ebook) DOI 10.1007/978-1-349-10908-1 Rory O'Donnell, 1990 Softcover reprint of the hardcover 1st edition 1990 All rights reserved. For infonnation, write: Scholarly and Reference Division, St. Martin's Press, Inc., 175 Fifth Avenue, New York, N.Y. 10010 First published in the United States of America in 1990 ISBN 978-0-312-04508-1 Library of Congress Cataloging-in-Publication Data O'Donnell, Rory. Adam Smith's theory of value and distribution/rory O'Donnell. p. cm. Inc1udes bibliographical references. ISBN 978-0-312-04508-1 1. Smith, Adam, 1723-1790. 2. Value. 3. Distribution (Economic theory) I. Title. HB 103.S6035 1990 330.15'3~c20 89-70271 CIP

Contents Acknowledgements viii 1 Introduction 1.1 Contemporary interpretations of Smith 1.2 The approach to interpretation 1.3 Outline of the argument 2 Theories of Value and Distribution 2.1 Classical or surplus theory 2.2 Neoclassical theory 2.3 Analytical themes in the study of Smith 1 2 3 4 7 7 13 20 PART I SMITH'S CONTRIBUTION 3 Surplus 3.1 Surplus and accumulation 3.2 'Annual produce' in the Wealth 0/ Nations 3.3 Gross and net revenue 3.4 A surplus theory of the non-wage share? 3.5 Conclusion 27 28 29 35 39 50 4 Competition 4.1 Natural price and the uniform rate of profit 53 4.2 Features of Smithian competition 54 4.3 Competition and equilibrium of supply and demand 56 4.4 The concept of a capitalist economic system 58 53 5 The Measure of Value 5.1 Smith's labour command measure 5.2 Smith's key assumptions 5.3 The operation of Smith's measure 5.4 Contrast with existing interpretations 62 63 67 69 71 v

vi Contents 5.5 Further evidence of Smith's intentions 76 5.6 Conclusions 80 6 Value and Distribution 82 6.1 The 'component parts of price' 83 6.2 Distribution 91 6.3 Assessment 100 6.4 Taxes 104 6.5 The corn export bounty 106 6.6 Observations on actual price changes 110 Appendix: absence of reduction of means of production to labour in Smith's work 113 PART 11 INTERPRETATIONS 7 Ricardo's Development of Smitb's Tbeory 121 7.1 The new theory of profits 122 7.2 Assumptions and their consequences 125 7.3 The relation of wage changes to prices 133 7.4 Va1ue and riches 138 7.5 Supply and demand 139 7.6 Conclusion 141 8 Marx on Smitb 142 8.1 Marx's 'two streams' proposition? 142 8.2 Smith as a surplus theorist 144 8.3 The labour theory of value 146 8.4 Labour command 151 8.5 The resolution of price into wages, profit and rent 154 8.6 Assessment 165 9 Smith as 'General Equilibrium' Tbeorist 171 9.1 Hollander's argument in outline 172 9.2 A 'supply and demand' explanation of value 174 9.3 Distribution 179 9.4 'Formal analysis' and 'practical applications' 185 9.5 A theorist of resource allocation determined by 193 factor endowments

Contents vii 10 Smith as 'Cost 01 Production' Theorist 197 10.1 'Cost of production' interpretations 197 10.2 Dobb's 'two streams' proposition 199 10.3 Ricardo's criticism of Smith's theory 201 10.4 The 'cost of production tradition' 204 10.5 Smith's contribution to surplus theory 207 10.6 Dobb and Schumpeter: a clarification 209 11 Conclusion 211 11.1 Smith and the surplus theory 211 11.2 Smith and the neoclassical theory 224 Notes and References 231 Bibliography 260 Index 271

Acknowledgements It is a pleasure to acknowledge my great debt to John Eatwell for his valuable guidance and support during the research for this book. Without his keen theoretical comments and considerable patience this work would not have been possible. I am grateful also to Prue Kerr, GeofTrey Harcourt and Murray Milgate for helpful comments. At an earlier stage of my studies I received a valuable intellectual stimulus from Patrick Lynch and Cormac O'Grada, and encouragement from Paul Andrews. A special debt is owed to my parents who provided continuing support and encouragement. I am extremely grateful to Jacqueline O'Connor for her first-ciass secretarial work and immense patience. The research for this work was funded by the Economic and Social Research Institute, Dublin, the Robert Gardiner Memorial Foundation, and Trinity Hall, Cambridge. RORY O'DONNELL Vlll