Smith’s Labor Theory of Value posits that in the early and rude state of society, prior to the emergence of capital and land appropriation, the value of a commodity can be measured only by the amount of labor needed for its acquisition. In other words, in the exchange of goods that are free, their value is ascertained by the amount of labor necessary for their production.
This is supported by Ricardo who suggests that commodities that possess utility and scarcity are, in themselves, valuable where their value is dependent on the capital and labor used for their production. As such, positive value is similar to the cost of production, which consists of the profits of stock and the wages of labor. Moreover, Ricardo is not concerned only with a commodity’s value in itself but also with the multiple amounts of other commodities that may be obtained in exchange; thus, making his theory focus not only on positive value but on relative value as well. As such, two commodities may be exchanged if the same amount of labor is involved in their production or if they command the same amount of labor for the commodity’s possession. This can be likened to Smith’s theory where, for example, if it takes twice more labor to kill a beaver than to kill a dear then this means that one beaver can be exchanged for two deer.
Similarly, Marx shares the same principle in his theory of value where he asserts that value is no more than congealed labor. He stated that value is labor, that is, abstract labor is the substance and the imminent measure of value. He further states that the value of commodities is based on their total labor costs, that is, their total labor content in terms of both their wage costs and their standard man-hours.
