Ricardo`s Theory Of Value

One of the enduring questions
of economics is "Where do profits come from?" One of the ways in which
economic philosophers have tried to answer it is by first answering the question
of value. At the center of most economic paradigms is a Theory of Value. The
classical political economists found value to be determined in production; since
most of the cost of production could be reduced to labour, this approach was
refined into The Labour Theory of Value. Neoclassical economists looked for
value in the market act of exchange and developed the Marginal Theory of Value.

Both of these theories are currently under challenge by the post-Keynesians with
their Sraffian Theory of Value, which, like the labour theory of value, is based
on production rather than exchange. Any theory of value in economics is an
extremely abstract formulation: in fact, value theory is the major intersection
between economics and philosophy. For millennia, literally, scholars and
theorists have tried to deduce how items attained their 'value'. From
pre-Christian to pre-Keynesian times, various strands of thought have proposed
(often divergent) explanations for this phenomenon. For instance, economists
sometimes use the term "theory of value" to mean quite different
things. Here, the term is used to denote a theory that attempts to explain
long-run prices in a capitalist economy. But there are also theories of value
which attempt to explain what prices should be. Medieval scholars used the
concept of just price, which was the price that would allow the producer to earn
a living appropriate to his social position. Some Institutionalists have
introduced similar concepts - such as normative value or reasonable value.

Whatever their explanations, theories of value are at the heart of two of the
major themes: i-) the distribution of wealth and income; and ii-)the maintenance
of microeconomic order. A Brief History of Value Theory The debate on the theory
of value, which was initiated in Ancient Greece and which became inactive during
the Middle Ages, later re-emerged at the close of the seventeenth century to
dominate economic thought for the next 200 years. Even today its primary
importance is such that Schumpeter claimed that "the problem of value must
always hold the pivotal position, as the chief tool of analysis in any pure
theory that works with a rational schema." Similar hypothetical solutions
varied from time to time. Considering that this piece is hyperbolic in scope,
shall, I would narrow down the analysis to the following structure. Firstly, I
would try to overview sketching Aristotelian, Scholastic and Mercantilistic
views on value. Secondly, I will follow an analysis of the contribution of
pre-classicalist writers like Petty, Cantillon, Galiani and Law to the debate.

Thirdly, the supply oriented theory of value put forward by classical economists
like Smith, Ricardo, Marx and Mill shall be examined. Fourthly, Jevons and

Mengers' neo-classical attempt to replace the classicalists with their
demand-oriented theory of value will be considered. Finally, both Walras' and

Marshall's respective resolution to the conflict shall be investigated by
individually accommodating the interactions of both supply and demand as
determinants of value within their overall economic framework. Early Economic

Thought The first great landmark in the long and tortuous intellectual struggle
with the riddle of value, was laid by the philosophers of the Athenian Academy
in the 4th century BC. It was Aristotle (384-322) who held that the source of
value was based on need, without which exchange would not take place.

Originally, it was he who distinguished between value in use and value in
exchange- "Of everything which we possess, there are two uses; For example
a shoe is used for wear and it is used for exchange". While the Scholastics
later adopted and accommodated these views to Christian thought, like the

Aristotelian philosophers before them, economics was not regarded as an
independent discipline but merely as an integral part of ethical and moral
philosophy. As a result, the debate on value was centred and henceforth retarded
by a normative approach - what value should 'justly' be, instead of what
actually is. During this period, utility was widely held as the determinant of
value with only a minority of theorists such as St. Thomas Aquinas (1225-1274)
and John Duns Scotus (1265-1308) taking note of the cost of the production side.

The search concerning value was continued in the direction of utility by early
mercantilists during the 16th and the first half of the 17th century. The
supremacy of this argument was highlighted in 1588 when Bernardo Davanzati
unsuccessfully attempted to construct a utility theory of value in Lecture On

Money. It is not surprising that they concentrated on the determinants of the
demand