ECO428H1 Chapter Chapter 1 Ricardo: ECO428H1 Chapter Chapter 1 Ricard: ECO428H1 Chapter Chapter 1 Ricar: ECO428H1 Chapter Chapter 1 Rica: ECO428H1 Chapter Chapter 1 Ric: ECO428H1 Chapter Chapter 1 Ri: ECO428H1 Chapter Chapter 1 R: ECO428H1 Chapter Chapter 1 : ECO428H1 Chapter Chapter 1 : ECO428H1 Chapter Chapter 1: ECO428H1 Chapter Chapter : ECO428H1 Chapter : ECO428H1 Chapter : ECO428H1 Chapter : ECO428H1 Chapter : ECO428H1 Chapter : ECO428H1 Chapter : ECO428H1 Chapter : ECO428H1 Chapter : ECO428H1 Chapter : ECO428H1 Chapter : ECO428H1 Chapter : ECO428H1 Chapter : ECO428H1 Chapter : ECO428H1 Chapter : ECO428H1 Chapter : ECO428H1 Chapter : ECO428H1 Chapter : Ricardo Principles Ch 1
Value of commodity/quantity of any other commodity for which it will exchange depends on
relative quantity of labor necessary for production, not on compensation which is paid for that
labor
•
Value in use
▪
Utility of an object
a.
Value in exchange
▪
Purchasing power that object conveys
b.
Things that have greatest value in use often has smallest value in exchange and vice versa
(water-diamond (Ricardo uses gold instead of diamond))
○
Adam Smith: value has two different meanings
•
If commodity not useful, would have no exchange value, however scarce it might be or
whatever quantity of labor necessary to procure it
○
Utility is not measure of exchangeable value, though is essential to it
•
Scarcity
a.
Quantity of labor required to obtain
b.
Commodities with utility derive exchangeable value from:
•
Cannot increase supply to lower value
▪
Rare statues, etc
▪
No labor can increases quantity
○
Value independent of quantity of labor originally necessary to produce
○
Value varies with wealth and inclinations of those desirous to possess them
○
Value of some commodities determined by their scarcity alone
•
Can only be increased in quantity by exertion of human industry
○
Most commodities can be procured by labor and may be multiplied almost without limit if we
bestow labor necessary to obtain them
•
Labor is first price, original money that paid for everything
▪
Amount of labor required to produce a commodity and amount of labor that
commodity can command are equivalent
▪
Smith: real price of everything is toil and trouble of acquiring
○
In early stage of society, exchange value depended entirely on comparative quantity of labor
expended on each
•
And every diminution must lower it
○
If quantity of labor regulates exchange value, every increase in quantity of labor must augment
value of that commodity on which it is exercised
•
Ricardo notes these are not equal
○
Quantity of labor bestowed on commodity is invariable
○
Greater quantity may be obtained for same amount of labor as a result
□
Subject to fluctuation based on improvements in skills and machinery
▪
Quantity of labor which commodity would purchase is subject to fluctuations
○
If reward of laborer always in proportion to what he produced, quantity of labor bestowed on
commodity and quantity of labor which commodity would purchase would be equal
•
Value of labor is affected by proportion between supply and demand, and also on varying prices
of food/necessities on which wages are spent
•
If wages initially were a certain quantity of food/necessaries, laborer could not have
subsisted on less
○
Food and necessaries must rise 100% if estimated by quantity of labor necessary to
production, but have not increased in value if measured by quantity of labor for which
they will exchange
○
If quantity of labor required to produce a given quantity of food and necessaries doubles, wages
may not change
•
If producing shoes falls 75%, worker will initially be able to consume 4 times more
shoes, but competitive forces will result in wages falling so worker can only consume the
same amount of shoes as initially
○
Any decrease in the amount of labor required to produce a good will result in wages falling in
long run to compensate
•
Smith is wrong in saying that labor never varies in value
•
Section I
Ricardo Principles Ch 1
November 13, 2019
ECO428 Page 1
Document Summary
Value of commodity/quantity of any other commodity for which it will exchange depends on relative quantity of labor necessary for production, not on compensation which is paid for that labor. Adam smith: value has two different meanings a. Things that have greatest value in use often has smallest value in exchange and vice versa (water-diamond (ricardo uses gold instead of diamond)) Utility is not measure of exchangeable value, though is essential to it. If commodity not useful, would have no exchange value, however scarce it might be or whatever quantity of labor necessary to procure it. Commodities with utility derive exchangeable value from: a. b. Value of some commodities determined by their scarcity alone. Value independent of quantity of labor originally necessary to produce. Value varies with wealth and inclinations of those desirous to possess them. Most commodities can be procured by labor and may be multiplied almost without limit if we bestow labor necessary to obtain them.
