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1990 | Book

Introduction Read chapter Read first chapter

Adam Smith’s Theory of Value and Distribution

A Reappraisal

Author: Rory O’Donnell

Publisher: Palgrave Macmillan UK

Book Series : Studies in Political Economy

Included in: Professional Book Archive

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Table of Contents

Frontmatter

Introduction

1. Introduction
Abstract
The perception of Adam Smith’s economics described by Black came into general acceptance largely as a result of Myint’s celebrated article ‘The Welfare Significance of Productive Labour’ and book on Theories of Welfare Economics (Myint, 1943 and 1948; and see Black, 1976, p. 61). However, any idea that Smith was concerned with growth to the exclusion of value and distribution was, inevitably, destined to be challenged. Any attempt to spell out Smith’s theory of growth in terms of dynamic laws of accumulation, productivity and population inevitably involves some mechanism determining value and distribution — however minor a role this was assigned in the overall model and however rudimentary its specification (see, for example, Lowe, 1954, p. 139 and 1975, p. 417 and 421). And, however great was Smith’s interest in growth and capital accumulation it is clear that the Wealth of Nations contained an enormous amount of detailed analysis of issues which necessarily involve the question of value and distribution.
Rory O’Donnell

Theories of Value and Distribution

2. Theories of Value and Distribution
Abstract
This chapter provides definitions of classical and neoclassical theory and establishes criteria by which the propositions outlined in Chapter 1 will be evaluated. The distinction between classical and neoclassical theory, which forms a point of reference of this study, is based on the identification of the essential analytical elements of each theory. In the view of many writers the logical structure of these theories are significantly different to warrant their treatment as two distinct schools of thought (see Schumpeter, 1954, pp. 567–8; Dobb, 1973). In many studies which make use of this distinction the precise logical structure of these theories of value and distribution are presented in mathematical form. Here I outline them verbally, preferring to illustrate them by drawing on the words of the great economists who developed them.
Rory O’Donnell

Smith’s Contribution

Frontmatter
3. Surplus
Abstract
As Black has noted ‘it is now generally accepted that Adam Smith was primarily concerned with the causes of the increase of the annual produce of society’ (Black, 1971, p. 10).1 Furthermore, it is also generally agreed that Smith’s theory of economic growth focused on capital accumulation (see Lowe, 1954; Thweatt, 1957; Spengler, 1959a and 1959b; Barkai, 1969; Hollander, 1973; Eltis, 1975 and 1984; and Anspach, 1976). Yet Smith’s account of capital accumulation is not seen as a surplus theory, for — as indicated in the statements by Spengler and Dobb — his concept of surplus is not seen as analogous to that of the physiocrats, Ricardo, or Marx. In his celebrated article on Smith’s theory of economic growth Spengler said that ‘Smith defined “neat revenue” as the whole annual produce minus the maintenance of fixed and circulating capital, but he did not relate savings to this residuum’, and he contrasted his own view with that of Marx whom, he said ‘asserted that Smith’s “surplus value” consisted of rent and profits’ (Spengler, 1959a, p. 410, emphasis added).
Rory O’Donnell
4. Competition
Abstract
We begin examination of Smith’s treatment of value and distribution by considering his use of the concept of competition. Skinner has demonstrated that ‘Smith had … attained a sophisticated grasp of the interdependence of economic phenomena prior to his departure for France in 1764’ (Skinner, 1976, p. 114). Yet it was only in the Wealth of Nations that he presented a complete statement of the implications of the interdependence of a system of markets. Chapter vii of Book I, ‘Of the Natural and Market Price of Commodities’, outlines the implications that competition has for prices and the rate of profit. In this chapter I identify the major features of this aspect of Smith’s contribution to the development of economic science.
Rory O’Donnell
5. The Measure of Value
Abstract
Hollander is undoubtedly correct when he says that in recent years there has emerged a remarkable consensus concerning Adam Smith’s measure of value. Smith’s labour command measure is seen as an index of purchasing power designed to measure welfare; and the relationships between labour commanded and labour embodied, given so much attention by earlier commentators on Smith, are dismissed as having played no significant part in his thought. Yet there is a striking contradiction between the conventional view, as expressed by Hollander, and Smith’s emphatic statement, quoted above, that the labour commanded (and labour embodied) value of a given commodity is not an index of its general purchasing power. In view of this, a reexamination of Smith’s measure of value seems warranted.
Rory O’Donnell
6. Value and Distribution
Abstract
The central questions which this chapter is designed to answer are: did Adam Smith succeed in developing a logically coherent theory of value and distribution and, if he did not, in what way did his analysis fall short of a solution to the problem of value? The identification of what he called the ‘component parts of price’ was central to his attempt to find such a theory. In Section 1 this analysis of the component parts of price is examined in great detail and some common misconceptions about it are cleared up. The resolution of price into wages, profits and rents brought Smith to a theory of value only in so far as he had a prior theory of these magnitudes — a theory of distribution. Consequently, in the second section of the chapter Smith’s account of distribution is examined. It is shown that his explanation of profit and, in particular, of the falling rate of profit, was quite unclear — sometimes suggesting a theory of the rate of profit consistent with his surplus view of the amount of profit, at other times explaining profit by reference to other forces such as competition. Some neglected aspects of his discussion of both profit and rent are brought to light and, though these do not overcome the basic problem in the analysis, they do enhance our view of Smith’s approach to distribution.
Rory O’Donnell

Interpretations

Frontmatter
7. Ricardo’s Development of Smith’s Theory
Abstract
In presenting the view that Smith contributed to the development of both classical and neoclassical theory — a view which we can call the two-streams view of Smith — Dobb placed great emphasis on Ricardo’s theoretical departure from Smith’s treatment of value and distribution (1973, pp. 47, 49, 72, 76–8, 80, 97, 112–16, 118–19, 122; 1975). These departures, and Ricardo’s criticisms of Smith, were considered of such a kind as to warrant the conclusion that Smith and Ricardo belonged, at least in part, to two different ‘streams of theory’ (see, for example, the statement quoted above). However, given that the interpretation of Smith’s treatment of value spelt out in the previous chapter, differs significantly from that adopted by Dobb (in ways which were indicated in passing in previous chapters and will be examined in detail in Chapter 10) a re-examination of the relation of Ricardo’s work to that of Smith is in order.
Rory O’Donnell
8. Marx on Smith
Abstract
In restating the view of Dobb and Meek that ‘Smith would be included as a theorist of both “distinct and rival traditions in nineteenth century economic thought”’ Bradley and Howard add ‘Marx seems the first to have explicitly noted this aspect of Smith’s work’ (1982, p. 34). What these authors have in mind are a number of statements by Marx, of the following sort:
Adam Smith’s successors, in so far as they do not represent the reaction against him of older and obsolete methods of approach, can pursue their particular investigations and observations undisturbedly and can always regard Adam Smith as their base, whether they follow the esoteric or the exoteric part of his work or whether, as is almost always the case, they jumble up the two. (Marx, 1861–63, II, p. 166; see also 1861–63, I, pp. 88, 151; and III, p. 20)
This statement could, at first sight, be seen as a two streams proposition. In order to assess whether such a view is justified it is necessary to examine Marx’s many comments on Smith’s work in more detail.
Rory O’Donnell
9. Smith as ‘General Equilibrium’ Theorist
Abstract
Professor Hollander’s 1973 book The Economics of Adam Smith is perhaps the most influential modern interpretation of Smith’s work. In that book Hollander successfully challenged the idea, found in the work of Myint (1948) and Hicks (1965), that Smith’s system can be adequately represented by a simple ‘corn model’ of capital accumulation (Hollander, 1973, p. 18).1 He shows that Smith’s concern was with the possibilites of capital accumulation in a many-good economy in which markets are widespread. But there is much more to Hollander’s interpretation than this, as is demonstrated by the remarkable statement by Recktenwald, quoted above, in his survey of the bicentenary literature on the Wealth of Nations. Indeed, Hollander himself says that ‘This work is in essence concerned with the relationship between Smith’s analysis of economic development and “general equilibrium” ’ (Hollander, 1973, p. 44, and see p. 20). It is this which has attracted great attention to Hollander’s book and persuaded many scholars of the view stated by Jaffe that ‘it is precisely in Professor Hollander’s masterly treatise that we see most clearly the link between the Walrasian and Smithian theoretical systems. To reveal this link was indeed … Hollander’s purpose, as he tells us explicitly’ (1977, p. 20).
Rory O’Donnell
10. Smith as ‘Cost of Production’ Theorist
Abstract
In a great many commentaries it has been said that Smith had a‘cost of production theory of value’. What inferences are drawn from this concerning Smith’s position in the development of theories of value and distribution clearly depends on what is meant by ‘cost of production theory’. Statements on the nature of the ‘cost of production theory’ in Smith’s work can be classed into three categories.
Rory O’Donnell
11. Conclusion
Abstract
It is clear from the literature that has been surveyed in Part II of this study that debate on the theory of value and distribution in Adam Smith’s Wealth of Nations has been very lively for almost two centuries, and is likely to continue. It is entirely appropriate that the work of one of the greatest ever economists should be re-read and actively debated as economic theory develops and our understanding of its history changes. The central purpose of this study has been to examine the partly conflicting and partly complementary interpretations advanced by Dobb and Hollander by means of a detailed study of the Wealth of Nations. Both Dobb and Hollander advance interpretations which stress Smith’s role in the development of value and distribution theory. Consequently, the secondary aim of this study has been to demonstrate the importance of adopting analytically correct definitions of the theories of value and distribution when considering Smith’s work in relation to them or assessing his role in their development.1
Rory O’Donnell
Backmatter
Metadata
Title
Adam Smith’s Theory of Value and Distribution
Author
Rory O’Donnell
Copyright Year
1990
Publisher
Palgrave Macmillan UK
Electronic ISBN
978-1-349-10908-1
Print ISBN
978-1-349-10910-4
DOI
https://doi.org/10.1007/978-1-349-10908-1