History of Political Economy Adam Smith’s Labor Theory of (Real) Value The Case of a Misfiring Critique [52(1)]

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Adam Smith’s Labor Theory of (Real) Value: The Case of a Misfiring Critique Terry Peach

I am grateful to Roy Grieve for drawing attention to my reconsideration of Adam Smith’s labor theory of (real) value (Peach 2009). Much as I regret not having convinced Grieve of the merits of my case, it is at least a relief to discover that, save for prompting me to revise my interpretation of one passage in Smith’s work (although not in favor of Grieve’s reading, I should add) I am unable to discover anything in his critique that persuades me to change my position in any fundamental respect. In what follows I will explain in detail why I have reached that judgement. The Issues As I stated at the outset of my article: “My purpose . . . is to question the widely held opinion that Adam Smith confined his use of a labor theory of exchangeable value to an ‘early and rude state of society’ in which independent laborers exchange the surplus products of their labor. As I propose to establish, Smith continued to apply labor theory reasoning to the later ‘commercial’ society, both to explain static exchangeable values and their changes” (Peach 2009: 383). In the hope of clarifying what I meant by “a labor theory of exchangeable value,” I appended the following note: Correspondence may be addressed to Terry Peach by email: [email protected]. I thank the editors of this journal for inviting my response to Roy Grieve’s article and Maggie Chen for her proofreading. History of Political Economy 52:1 DOI 10.1215/00182702-8009597 Copyright 2020 by Duke University Press

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“For the purposes of this article, and without claiming that this is the only possible construction, a labor theory of exchangeable value should be understood as a theory maintaining that (changes in) exchangeable value between some designated class of produced commodities are determined by (changes in) the quantities of labor expended on their production” (383n1). Perhaps, with hindsight, I should have attached a list of all the things I did not mean by a “labor theory.” The list would have included the following, attributed to me by Grieve (2019: 775–76), that “commodity values [he means prices] correspond to labor-embodied values” (something that “could make sense only if labor-embodied was the same as labor-commanded—implying that the situation in the ‘commercial society corresponds to that of the ‘early and rude’ state”). With the price or “value” of an individual commodity equated by Grieve with “the value of the labor [that is, wages, for Grieve] employed in its production,” in turn equated with “quantities of labor-embodied,” it is indeed the case that this “labor theory can only apply (when it does apply) in the absence of payments including profit, otherwise “labor embodied” does not equal “labor commanded.” But that was not my meaning of a “labor theory,” nor is it a meaning I attribute to Smith. To repeat, the type of “labor theory” I discuss and do attribute to Smith makes no use of a concept of individual or absolute value in Grieve’s sense, but instead relates to the explanation of “(changes in) exchangeable [i.e., relative] value” either in terms of “(changes in) quantities of labor”—that is, relative quantities of labor— “expended on their production,” or to (changes in) the “real price/value” of commodities, understood as a function of the quantities of labor expended in production: a theory, in either of the two formulations, that does not require an equality between “labor embodied” and “labor commanded.” Returning to my article, I point out that the presence of “labor theory passages” in The Wealth of Nations “has been acknowledged by a small number of previous commentators. However, because they believed that Smith had restricted the labor theory to an ‘early and rude state,’ the passages were variously treated as anomalies, as evidence of confusion and contradiction, as unexpurgated remnants from a previous draft, or as propositions relating solely to changes in exchangeable values implying no commitment by Smith to a labor theory of static or ‘equilibrium’ exchangeable values” (Peach 2009: 384). As I interpret them, these “labor theory” passages fall into five categories: (1) those that explain the exchangeable value of commodities explicitly in terms of the (relative) quantities of labor expended on their production; (2) those that equate (changes in) the “real price/value/dearness/cheapness” of commodities with (changes in) the

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quantities of labor required to produce and market them; (3) those that equate changes in “real price” with changes in quantity of labor as reflected in changes in the total cost of labor incurred in production and marketing (relative to other commodities); (4) those that equate the “real dearness/ cheapness” of commodities with the (relative) cost of labor expended in production (a reflection of the relative quantities of labor expended); (5) and those maintaining that “real cheapness/cost/value” cannot change unless there is a change in the total cost of labor expended on their production (again as a reflection of the quantity of labor expended) even though Smith’s own choice of “real measure” would give a quite contrary result. An interpretative puzzle arises if (a) we accept that the “labor theory” passages exist; and (b) we believe that Smith had explicitly confined the applicability of the labor theory to an “early and rude state”; and/or (c) we believe that Smith was fully aware of reasons for “confining” the labor theory, regardless of any explicit renunciation. I maintain that the passages do exist, and that he had not explicitly confined the applicability of the labor theory to an “early and rude state.” I also accept that he recognized a potential difficulty for the labor theory arising from the payment of rent, and that he was aware of a “compounding” effect of profit and (relatedly) of differences in the “time profile” of labor inputs between production processes: differences that could be said (and were said by Ricardo) to “modify” the labor theory. However, I argue that in the case of rent, he had his own procedure for “getting rid” of the perceived difficulty, whereas for “time profiles,” he did not draw out the implications for the labor theory treatment of exchangeable value (that had to wait for Ricardo). In sum, I argue that the puzzle surrounding the labor theory passages is purely chimerical: there is nothing strange about their presence because Smith never knowingly had confined the theory to an “early and rude” state of society (whether “we” think he should have done so is another matter entirely). In addition, I draw attention to the peculiarity of Smith’s identification, in all but the first category of labor theory passages, of (changes in) “real” magnitudes (price, value, cheapness, dearness, cost) with (changes in) the quantity of labor expended in production or the costs of the labor expended. On my interpretation, Smith’s “real measure of exchangeable value,” in terms of which “real” magnitudes are calculated, was poorly suited to establishing the link with (changes in) quantities of labor expended in production (for reasons I rehearse below). I therefore take Smith’s evident desire to unambiguously link “real” magnitudes with labor expended as evidence of his embrace of, and commitment to, labor theory reasoning; and that is how I likewise interpret his transformation of the “corn

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commanded” proxy for “labor commanded” into a labor embodied standard by drawing attention to the supposedly constant labor cost/quantity in the production of corn: something that is irrelevant to corn’s proxy “labor commanded” usage. Finally, I take it as significant that in the fifth category of labor theory passages, Smith simply abandons his “measure” when he cannot make it yield his desired result and directly identifies “real cheapness/cost/value” with the cost/quantity of labor employed in production. Turning to Grieve, he shares my conviction that an interpretative puzzle is absent, but his reasoning is quite different. For him, firstly, the labor theory passages do not exist (the words are all there, but they do not bear a labor theory construction); second, Smith accepted “that the simple labor-embodied theory of value (the proposition that the value of a commodity corresponds to the value of the labor employed in its production [i.e., wages]) applies only in the context of a society in which all income is received by labor without any share going as rent or profits” (Grieve 2019: 753)1; third, Smith’s “recognition of the differing conditions of production across industries implies an understanding [by Smith] that the relative prices of final goods would [not] be . . . proportionate to labor costs” in the later “commercial” society (760); and fourth, “a serious misunderstanding on Peach’s part of the labour commanded approach” pretty much torpedoes my entire interpretation (or “revolutionary transformation—of Smith’s theory of value,” as Grieve dramatizes it [762]). I examine further these and other related propositions below under the section headings of my original article. Confinement of the Labor Theory? For most commentators, Grieve included (if for his own peculiar reasons), Wealth of Nations I.vi begins with Smith’s application of a labor theory of value to an “early and rude state of society which precedes both the accumulation of stock and the appropriate of land.” In such a society, the proportion between the quantities of labour necessary for acquiring different objects seems to be the only circumstance which can afford any rule for exchanging them for one another. If among a nation of hunters, for example, it usually costs twice the labour to kill a beaver which it does to kill a deer, one beaver should naturally exchange for or 1. This being Grieve’s interpretation of a “labor theory.”

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be worth two deer. It is natural that what is usually the produce of two days or two hours labour, should be worth double of what is usually the produce of one day’s or one hour’s labour. (Smith 1776: I.vi.1) To stress, commodities exchange at ratios determined by “the quantity of labour necessary for acquiring them” in the sense of producing them. The same point is made a couple of paragraphs later, this time with introduction of a new concept, “labour commanded”: “In this [early and rude] state of things, the whole produce of labour belongs to the labourer; and the quantity of labour commonly employed in acquiring or producing any commodity, is the only circumstance which can regulate the quantity of labour which it ought commonly to purchase, command, or exchange for” (I.vi.4). As I noted: “The ‘quantity of labor which [a commodity] ought commonly to purchase, command, or exchange for’ should be understood either as the ‘living labour’ that could be purchased with the commodity [for example, if two days’ labor is expended in ‘acquiring or producing’ a commodity, the commodity could be exchanged for two days of ‘living’ labouring activity] or, alternatively in this context, as the quantity of labor expended on a second commodity for which the first commodity is exchanged” (Peach 2009: 386n10). With the appearance of profit-seeking “owners of stock,” the situation changes: In this state of things, the whole produce of labour does not always belong to the labourer. He must in most cases share it with the owner of the stock which employs him. Neither is the quantity of labour commonly employed in acquiring or producing any commodity, the only circumstance which can regulate the quantity which it ought commonly to purchase, command, or exchange for. An additional quantity, it is evident, must be due for the profits of the stock which advanced the wages and furnished the materials of that labour. (Smith 1776: I.vi.7; my italics) As I remarked, “It may be that the italicized lines have been read, overhastily, as evidence of Smith’s abandonment of the labor theory” (Peach 2009: 387). That would certainly apply to Grieve, who takes the mere point that profit (and rent) must be paid as decisive proof that prices can “no longer correspond to labor embodied,” hence that “the simple labor-embodied theory of value . . . applies only in the context of a society in which all income is received by labor”: something that Smith allegedly accepted (Grieve 2019: 753). However, any appearance of credibility in

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Grieve’s ruminations is specious: it derives solely from his idiosyncratic interpretation of a “labor theory” that can only apply in the absence of “capitalists” and landlords; and that is neither my conception of a “labor theory” (the one in the article that Grieve purports to criticize), nor is it the one that I attribute to Smith. It is almost surprising that Grieve does not conclude his critique with what is, if only for him, irrefutable proof that Smith did confine the “labor theory” to the “early and rude state.” But, commendably, he finds his way back to my argument that an inequality between “the quantity of labor commonly employed in acquiring or producing any commodity” and “the quantity [of labour] which it ought commonly to purchase, command, or exchange for,” in and of itself, “implies nothing about the ‘rule’ governing the exchangeable value of commodities”: that depends on the relative proportions in different prices between the profit-plus-rent components and the wage component (on the assumption that the size of the wage component is in proportion to the quantity of labor expended per unit of output). In the case of rent, I pointed to Smith’s (1776: I.vi.14) own belief that its significance as a component in the prices of manufactured commodities will be diminished in “the progress of the manufacture” (involving the use of more manufactured inputs): “As any particular commodity comes to be more manufactured, that part of the price which resolves itself into wages and profit, comes to be greater in proportion to that which resolves itself into rent” (my italics), with the result that “prices of manufactures tend increasingly to sums of wages-plus-profit” (Peach 2009: 391). In view of Grieve’s silence on this argument, I will take it as uncontested. With regard to the profit component, as I stated, “‘modifications to the labor theory will arise (as we should know from Ricardo) if there are differences in the ‘time profile’ of labor inputs between production processes. Smith was aware of such differences (although, of course, he did not put it that way himself)” (389; my italics). On my reading, however, “there are no grounds for suggesting that he possessed an appreciation of the analytical issues such that he should, or would, have rejected the labor theory because of those ‘modifying’ influences.” Grieve disagrees: “Smith’s recognition of the differing conditions of production across industries implies an understanding that the relative prices of final goods . . . [are not] equal to labor embodied [and also] the possibility that they are proportionate to labor costs is effectively ruled out by the dissimilarity of production conditions across industries” (Grieve 2019: 760).

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The point about commodity prices not being “equal to labor embodied” is relevant only to Grieve’s conception of a “labor theory” and deserves no further comment. As to the “implication” that relative prices cannot be “proportionate to labor costs,” I made the very same point myself. Our difference is over Smith’s own grasp, or comprehension, of the logical implication. The first case to which I drew attention was Smith’s (I.vi.6) discussion of two manufacturing processes with different “time profiles” of labor inputs, in which the differential compounding effect on profit is such that “their profits are so very different.” No doubt, this does carry the logical implication that prices will not be proportional to quantities of labor expended in the production processes (or to “labor costs,” as Grieve puts it). But that was not an implication drawn by Smith, whose attention was on refuting the view of profit as a reward for “the labour of inspection and direction,” his punchline being not that the exchangeable value of the final goods is “so very different” from the proportions given by quantities of labor expended in production, but that the amount of profit received is “very different” even though the “labour of inspection and direction” may be “either altogether or very nearly the same” for both manufacturers. Similarly, at the close of I.ix, to which I also drew attention, Smith’s discussion of the “compounding effect” on profit in the manufacture of linen could be viewed as a preliminary step in a demonstration of “modifying” influences on the labor theory; but completion of the demonstration would require the introduction of at least one different production process, a step he did not take, and it would require a focus on the implications for exchangeable value, which he did not have: his focus in this case was to show that “high profits tend much more to raise the price of work than high wages” (because of compounding), hence to castigate “merchants and master-manufacturers [who] complain much of the bad effects of high wages in raising the price [of goods]” but “say nothing concerning the bad effects of high profits” (I.ix.24). One set of passages I did not discuss, by which Grieve sets great store, gives a description of the considerable differences that are said to exist by Smith in the proportions of fixed to circulating capital in different industries (II.i.8–9). For Grieve (2019: 759), the passages provide “a clear indication that he understood the time patterns of applications of labor inputs to vary significantly between industries”; hence, again by “implication,” he also understood that prices cannot be “proportionate to labor costs [or quantities].”

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However, what strikes me as “clear” is that Smith did not himself reconceptualize different proportions of fixed and circulating capital in terms of “time patterns of labor inputs”; and, more importantly, that any link with exchangeable value is notably absent both in the passages and in the chapter of which they are a part. To take Smith’s own statement of his agenda: “in the first chapter [II.i], I have endeavoured to show what are the different parts or branches into which the stock, either of an individual, or of a great society, naturally divides itself” (Introduction, II.6). And that is precisely what he did, no more and no less: investigating a connection with exchangeable value was not part of his agenda. I stand by my judgement that although Smith was aware of underlying circumstances that would result in a “modification” to the labor theory, he himself did not make the necessary link with exchangeable value: his preoccupations were elsewhere. One might say that the basis for the difficulties that were subsequently to plague Ricardo was latent in Smith work, but that is all. It was as a result of commission (in the case of rent) and omission (in the case of profit) that I believed it was possible to understand why Smith’s “labor theory” pronouncements would not have been thought by him to involve self-contradiction, and to close this part of my argument I gave three examples of what I believed were instances of Smith’s use of such reasoning. On reflection I now accept that my interpretation of the first example, dismissed by Grieve (erroneously) as having “nothing to do with the labor-embodied theory of value,” is not so straightforward as I suggested. In I.xi.g.28, the passage in question, Smith was discussing the reasons for differences in the money prices of “the greater part of manufactures” in the “great empires” of China and Indostan compared with Europe. He pronounced: “in countries of equal art and industry, the money price of the greater part of manufactures will be in proportion to the money price of labour,” which I took as a direct statement of the proportionality of prices to quantities of labor expended on production on the assumption of a uniform money wage rate. I now realize —mea culpa—that Smith’s statement related to the “proportionality” of prices “in countries of equal art and industry” when money wage rates differ between the countries. His statement therefore amounts to saying that if, for example, the money wage rate (per unit of labor) is double in Europe what it is in China and Indostan, then the money price of the same manufactures produced in places of (roughly) “equal art and industry”—Europe and the “great empires”—will, by “proportionality,” also be (roughly) double in Europe what they are in the empires: a statement that is true only if the quantities of labor expended

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per unit of output of “the greater part of manufactures” are (roughly) the same in all locations and if there are no differences in “time profiles” (or, probably more likely, if the question of “time profiles” is ignored). Furthermore, the argument also implies that money prices “of the greater part of manufactures” within the empires, and within Europe, are also in proportion to the quantities of labor expended in production in those places. Finally, if there should be any lingering doubt about Smith’s use of “labor theory” reasoning in I.xi.g.28, it should be dispelled by considering a later stage of his argument, within the same paragraph, where he is in effect holding money wage rates constant and distinguishing other reasons why international money prices might differ. Thus, because of the greater “expence of land carriage” in Europe, it “costs more labour, and therefore more money” to market commodities in Europe relative to empires in which “the extent and variety of inland navigations save the greater part of this labour, and consequently of this money.” Smith explains these differences in exchangeable value in terms of differences in quantities of labor expended as reflected in the (relative) costs of the total labor inputs. My second example is from II.ii.105, where I “imaginatively but incorrectly” find “labor embodied thinking,” according to Grieve, who adds: “all that Smith is saying is that, other things being the same, the poorer and more difficult to work are the mines from which these metals are derived, the more expensive gold and silver will be relative to all other commodities” (Grieve 2019: 760). But that is not “all that Smith is saying”: The proportion between the value of gold and silver and that of goods of any other kind, depends in all cases . . . upon the richness or poverty of the mines . . . It depends upon the proportion between the quantity of labour which is necessary in order to bring a certain quantity of gold and silver to the market, and that [i.e., that “quantity of labour”] which is necessary in order to bring thither a certain quantity of any other sort of goods. (II.ii.105; italics added) At the expense of stating the obvious, the “richness of poverty of the mines” is distinguished in terms of the quantities of labor expended on bringing the metals to market: a case of “labor embodied reasoning” that should be accessible even to the most unimaginative reader. My third example is, for Grieve, yet another instance of my “undue readiness to find evidence of the labor-embodied theory in Smith’s work.” Here is Grieve’s rendition and interpretation of the passage in question (I.x.c.19):

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What Smith actually says is that higher wages and profits in the towns “give the traders and artificers in the towns an advantage over the landlords, farmers and labourers in the country and break down that natural equality which would otherwise take place in the commerce which is carried on between them.” Specifically, as Smith explains, the labor of the townspeople has a greater purchasing power over goods and services than that of the labor of country people. Contrary to Peach’s contention, there is nothing here which points to the labor-embodied theory: the trading advantage of the townspeople (as compared with the “natural equality” which would otherwise have existed) is expressed in terms of labor-commanded with no reference to labor-embodied. (Grieve 2019: 761) What Smith “actually” and “specifically” says, rendered invisible by Grieve’s self-servingly elliptical quotation, is this: Whatever regulations . . . tend to increase those wages and profits [in towns] beyond what they otherwise would be, tend to enable the town to purchase, with a smaller quantity of its labour, the produce of a greater quantity of labour of the country. They give the traders and the artificers in the town an advantage over the landlords, farmers, and labourers in the country, and break down that natural equality which would otherwise take place in the commerce which is carried on between them. (Smith 1776: I.x.c.19) What this suggests, at least to me, is that a “natural equality” occurs when the produce of a given “quantity of labour” from the country exchanges for the produce of the same “quantity of labour” from the town (as Smith states within I.x.c.19, the town pays for country produce with the “materials,” that is, the produce, “wrought up and manufactured” in the towns): a proposition that unmistakably “points to the labor-embodied theory.” Real Price/Real Value and the “Real Measure of Exchangeable Value” My purpose in this section was to show that Smith’s choice of “labor commanded” as the “real measure of exchangeable value,” hence of the measure of “real” prices/values and other “real” magnitudes,” was unsuited to measuring (changes in) labor expended on the production of commodities. This demonstration was a prelude to considering passages in which he did identify (change in) “real” magnitudes with (changes in) labor expendi-

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tures: passages that indicate his commitment to “labor theory” reasoning in defiance of the logic of his own “measure.” Grieve sees thing differently. Confident that he has, “without doubt,” understood Smith’s position on the “real measure,” he expostulates at length on my “serious misunderstanding” which, he declares, is “key” to my “gross misrepresentation of Adam Smith’s thinking in respect of real cost and value,” and to my “unconvincing” interpretation of Smith’s treatment of value more generally (Grieve 2019: 776). One instance of my “misunderstanding, or “puzzlement,” is allegedly over the very “point of measuring real commodity prices in the advanced commercial society.” However, as I mentioned in a couple of footnotes, perhaps overlooked by Grieve, discussion of all the uses “to which Smith put his real measure . . . commonly alleged to include the measurement of ‘welfare,’ purchasing power, and productive capacity, is beyond the scope of this essay” (Peach 2009: 384n5, compare 395n23). If Grieve is interested in my view of those uses, I suggest he consult Peach 2008 and 2010. Turning to the “serious misunderstanding,” this is said to have resulted from my false identification in the “commercial” stage of society (with the payment of profit and rent) of what I denoted as LA1 (“‘the labor of acquiring’ through production”) with LA2 (“‘the labor of acquiring’ through purchase’”). As it transpires, Grieve’s charge of egregious misunderstanding and misinterpretation would be better directed to his own efforts; he does not seem to realize that his groundless accusations, even if true, would have no substantial bearing on my subsequent argument. Returning to Smith’s discussion of the “early and rude state of society,” it is “the proportion between the quantities of labour necessary for acquiring different objects [i.e., my LA1, that] seems to be the only circumstance which can afford any rule for exchanging them for one another” (I.vi.1), where the “quantities of labour” for “acquiring” are, quite evidently, the quantities of labor expended on production: “It is natural that what is usually the produce of two days or two hours labour, should be worth double of what is usually the produce of one day’s or one hour’s labour” (I.vi.1). Further, “the quantity of labour commonly employed in acquiring or producing any commodity, is the only circumstance which can regulate the quantity of labour which it ought commonly to purchase, command, or exchange for” (I.vi.4). That is, the quantity of labor “in acquiring or producing” [my LA1] is conceptually distinct from the labor purchased, commanded or exchanged for, which may also be understood as my LA2, that is, the “‘toil and trouble of acquiring’ through purchase or exchange.”

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Although conceptually different, the quantity of labor “in acquiring or producing” (my LA1) will be equal (numerically) to the quantity “purchased, commanded or exchanged for” (my LA2) in, and only in, “the early and rude state.” As I (2009: 395) stated: “the contingent equivalence between the two notions of labor of acquiring in the early and rude state is explicit in the following analysis from the chapter ‘Of the Wages of Labour,’” [an analysis explicitly located in] “that original state of things, which precedes both the appropriation of land and the accumulation of stock” (1.viii.2): Let us suppose . . . that in the greater part of employments the productive powers of labour had been improved to tenfold . . . but that in a particular employment they had been improved only to double. . . . In exchanging the produce of a day’s labour in the greater part of employments, for that of a day’s labour in this particular one, ten times the original quantity of work in them would purchase only twice the original quantity in it. Any particular quantity in it, therefore . . . would appear to be five times dearer than before. In reality, however, it would be twice as cheap. Though it required five times the quantity of other goods to purchase it, it would require only half the quantity of labour either to purchase [my LA2] or to produce it [my LA1]. The acquisition, therefore, would be twice as easy as before. (I.viii.4; my italics) “Smith might well have written that ‘the acquisition in both senses [i.e. of “purchase” and “production”] would be twice as easy,’ since that was clearly his meaning” (Peach 2009: 395). With the clarity of that meaning now in doubt, I should perhaps add that the quantity of labor to purchase the cheaper commodity [my LA2] is the length of time a laborer must work to purchase that commodity through the exchange of a quantity of the dearer one. It is when we depart the “early and rude state” that the inequality arises between (my) LA1 and LA2. With apologies for repetition: In this [later] state of things, the whole produce of labour does not always belong to the labourer. He must in most cases share it with the owner of the stock which employs him. Neither is the quantity of labour commonly employed in acquiring or producing any commodity, the only circumstance which can regulate the quantity which it ought commonly to purchase, command, or exchange for. An additional quantity, it is evident, must be due for the profits of the stock which advanced the wages and furnished the materials of that labour. (I.vi.7; my italics; quoted in Peach 2009: 387)

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While it may take precisely the same quantity of labor to “produce or acquire” a commodity (LA1) it must now take more hours of labor, either by the laborers who produce the commodity or by other laborers, to earn sufficient wages to acquire it through purchase (LA2). End of story (one might hope). Where, then, does my egregious error arise? The answer forthcoming from Grieve is that I had overlooked the identity in all stages of society between my LA1 and my LA2: the labor of acquisition qua labor time spent producing something is always and necessarily equal to the labor of acquisition qua labor time that must be expended in order to purchase something. Thus, for the “commercial” stage, Grieve has simply redefined my LA1 as the length of time that laborers must spend in a particular production process in order to earn sufficient wages to purchase the output of that process: a length of time that is necessarily in excess of the time to produce that output. In other words, he redefines my LA1 as my LA2, claims that this was my understanding of LA1 (Grieve 2019: 763), then charges me with all manner of errors for not comprehending the logic of a position that was not mine in the first place: a finer example of a straw man fallacy is hard to imagine. He also wonders how I could possibly have “come to make this error of supposing LA1 and LA2 to be unequal in the case of the ‘commercial’ economy” (Grieve 2019: 763), to which I answer: by taking Smith at his word (see I.vi.7, quoted above). Let us counterfactually assume, however, that I had blundered into the error attributed to me by Grieve. Would my entire interpretation have come tumbling down, as he suggests? I think not. Doubtless, it would call for some minor rewording, exemplified by the deletion of the italicized lines in the following passage: “Labor commanded now presents itself as a measure of real price or real value interpreted either in the second sense of labor of acquiring (of purchasing by laborers) or as command over living wage-labor. But, it has also become ill-suited to the task of equating real price to the first concept of labor of acquiring: the labor expended on a commodity’s production” (Peach 2009: 396). The position remains that the “labor commanded” standard is ill-suited to the task of equating real price to “the labor expended on a commodity’s production,” regardless of whether we identify that labor expended with my LA1. And it is ill-suited for exactly the reasons that I gave in my article: first, because “real value” is unequal to “labor embodied/expended”; second, because real prices (measured by labor commanded) can change with no change in labor embodied (when there is a change in the “real price of labor” and/or its nominal price); and third, because changes in

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labor embodied can occur with no changes in real price (as with a change in the labor expended on the wage-goods that make up a given “real price of labor”). I concluded the corresponding section in my article thus: “Whatever the point, therefore, of measuring the (changing) real prices of individual commodities in the advanced commercial society—something that was categorically part of Smith’s agenda—one might scarcely imagine that it was principally to associate real prices with labor embodied. But that is exactly what he attempted to do” (Peach 2009: 397). I reiterate, it really was “what he attempted to do,” as I shall demonstrate again in the following section. Real Price/Real Value and Labor Embodied I begin with Grieve’s (2019: 771) pronouncement on I.v.7 that there “can be no doubt that, Smith . . . was thinking in terms of changes in values as corresponding to changes in labor-commanded, not labor-embodied. Smith explains that ‘as it cost less labor to bring these metals from the mine to the market, so when they were brought thither they could purchase or command less labor.’” Indeed, Smith was making the point that “as it cost less labour” to bring metals to market, therefore their “real price/value” (their “labor commanded”) fell. But it “cost less labour” only because a lesser quantity of labor was involved in bringing them to market compared with the quantity and cost of labor from more “barren” mines (the greater or lesser “cost of labour” is a reference to greater or lesser quantities of labor multiplied by the same money wage rate). And should there be any doubt about quantity of labor as the criterion for “the fertility or barrenness of the mines” (with cost of labor as its reflection or “dual”), we need only revert to II.ii.105 where the point is made explicitly. In sum, the “real value” of the metals is taken as determined by the quantity of labor expended as reflected in the cost of that labor. Grieve (2019: 772) next turns to my discussion of I.xi.m.15 and I.xi.g.28. Without quoting either passage, he delivers the following verdict: “The fact of course is that in the case of a ‘commercial society,’ any increase in necessary labor inputs, direct or indirect, must increase cost of production . . . and consequently (ceteris paribus) the price of the commodity (quite in accordance with the labor-commanded theory).” If , by his acceptance of that “fact,” he is also accepting that “changes and differences in embodied labor are [taken by Smith as] the causes of corresponding changes and differences in real prices (and, therefore, exchangeable values), without

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any explicit mention of labor commanded,” in the case of I.xi.m.15 (Peach 2009: 398); and if, in the case of I.xi.g.28, he is also accepting that “differences in the ‘indirect labor expenditures’ . . . are highlighted as the principal reasons for the international differences in the real prices and money prices . . . [again] without direct reference to labor commanded” (399); then, I can only welcome his unexpected agreement that Smith was making a direct identification of (changes in) real prices, and money prices, with (changes in) quantities of labor expended in production. Whether Grieve also agrees with my interpretation of I.xi.1.13 and I. xi.e.25, the passages I discuss immediately before I.xi.m.15 and I.xi.g.28, is unknown: he passes over them without comment. His neglect of I. xi.e.25 is revealing; Smith had written: In a country naturally fertile, but of which the far greater part is altogether uncultivated, cattle, poultry, game of all kinds, &c. as they can be acquired with a very small quantity of labour, so they will purchase or command but a very small quantity. The low money price for which they may be sold, is no proof that the real value of silver is there very high, but that the real value of those commodities is very low. (my italics) I remarked: “Here, the (relatively) low money price of the agricultural produce is presented as a consequence of its low real value, itself a reflection of the circumstance that the produce can be ‘acquired’ (i.e., produced) ‘with a small quantity of labour’” (Peach 2009: 398). The italicized lines make clear that unless Smith was delivering a tautology, the quantity of labor by which cattle, and so forth, are acquired is evidently the quantity of labor by which they are produced (i.e., my LA1). It was at this stage in the section that I drew attention to Smith’s “switch in the Digression [concerning the Variations in the Value of Silver] from labor commanded to ‘corn commanded’ as the ‘real’ measure and, more pertinently, his assumption . . . that corn is produced with ‘nearly equal quantities of labor’” (Peach 2009: 399). To give an abbreviated version of the relevant passage: In every different stage of improvement [of a society] . . . the raising of equal quantities of corn . . . will, at an average, require nearly equal quantities of labour; or what comes to the same thing the price of nearly equal quantities . . . [Hence] we may rest assured, that equal quantities of corn will, in every state of society, more nearly represent, or be equivalent to, equal quantities of labour, that equal quantities of any other

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part of the rude produce of the land. Corn accordingly . . . is . . . a more accurate measure of value that any other commodities or sett of commodities . . . therefore, we can better judge of the real value of silver, by comparing it with corn, than by comparing it with any other commodity or sett of commodities. (I.xi.e.28; emphasis added; quoted in Peach 2009: 399–400) As I remarked, the presumption that corn is produced by “nearly equal quantities of labour” over time (and therefore, as Smith was prone to say, that it requires “the price of nearly equal quantities” over time) is “irrelevant both to the labor commanded standard and to the use of corn commanded as its proxy measure” (Peach 2009: 400). To clarify, the “labor commanded” by silver, silver’s “real price,” is calculated by dividing a quantity of silver by the silver (money) wage rate at a particular point in time. But what if the silver wage rate is unknown or, as Grieve puts it, has been “lost in the mists of time”? In that case, because there are more complete historical records of corn prices, Smith suggests that the silver price of a given quantity corn may be used as a “proxy” for money wages, hence the use of “corn commanded” as a proxy for “labor commanded,” a procedure resting on the assumed fact that “equal quantities of labour will at distant times be purchased more nearly with equal quantities of corn, the subsistence of the labourer, than with equal quantities of gold and silver, or perhaps of any other commodity” (I.v.15). As Smith was aware, however, the accuracy of the “proxy” measure depends on the constancy of the “subsistence of the labourer, or the real price of labour,” which may be “very different on different occasions”; but it does not depend on the (constancy of) the quantity of labor required to produce corn. The force of that consideration is to establish a direct link between (changes in) the “real” value of silver and (changes in) the quantity of labor expended on its production. For Grieve, Smith’s sole purpose in using “corn commanded” was to obtain a proxy for “labor commanded.” Why, then, did Smith introduce a consideration—the “nearly equal quantities of labour” expended on the production of corn—that was irrelevant to his purpose (on Grieve’s own reading)? Much as Grieve finds my interpretation “extraordinary” and “unsatisfactory,” he has precisely nothing to say by way of explanation of Smith’s introduction of the “equal quantities of labour” observation. It is as if the words amounted to no more than random verbiage. Moving on, I considered two cases where, because Smith’s “corn commanded” standard failed his purpose, he resorted to identifying “real”

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magnitudes with the labor required for production and marketing without invoking any “real measure.” To take the first case: “In great towns corn is always dearer than in remote parts of the country. This, however, is the effect, not of the real cheapness of silver, but of the real dearness of corn. It does not cost less labour to bring silver to the great town than to the remote parts of the country; but it costs a great deal more to bring corn” (I.xi.e.37). As I commented: “silver is ‘really cheaper’ (its real price/real value is lower) in ‘great towns’ because, on Smith’s own criterion, it commands less corn. . . . Now unwilling to follow the logic even of his own corn commanded measure, Smith has identified ‘real dearness’ and ‘real cheapness’ not with the results of his ‘measure,’ which give the ‘wrong’ result, but directly with the quantities of labor expended in production” (Peach 2009: 402). But Grieve will not have it. According to him, Smith had silently switched to the “labor commanded” version of his “real measure” which, Grieve imagines, would yield a result more congenial to his (Grieve’s) interpretation (Grieve 2019: 772–73). He is mistaken. The higher silver price of corn in towns would be reflected in a higher silver nominal wage rate and therefore a lower real price/value even in terms of that standard. What Smith is doing, in contrast, is locating the cause of “real cheapness/dearness” in circumstances pertaining to individual commodities: the labor required to produce and market them. The second case is similar: “It does not cost less labour to bring silver to Amsterdam than to Dantzick; but it costs a great deal more to bring corn. The real cost of silver must be nearly the same in both places; but that of corn must be very different” (Smith 1776: I.xi.e.38). In terms of corn, the “real cost of silver” would be lower in Amsterdam, from which I inferred that Smith was again falling back on a direct identification of “real cost” with labor expended. If, alternatively, we take Grieve’s choice of “labor commanded” (imputed by him to Smith) the “real cost of silver” in the two places will be “nearly the same” not because the labor costs of conveyance are, unlike corn’s, the same for the two places, as Smith actually states, but because, for some completely unknown and (by Smith) unstated reason, the “real price of labour” is lower in Amsterdam (to compensate for the higher price of corn). If that was Smith’s meaning, he did an excellent job of hiding it (which would probably be just as well). I next considered a further case of the “corn commanded” standard failing Smith’s “labor embodied” purpose, this time because the “average supply” of corn had not been “suited” to “the average demand” (I.xi.e.28):

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The high price of corn during these ten or twelve years past, indeed, has occasioned a suspicion that the real value of silver still continues to fall in the European market. This high price of corn, however, seems evidently to have been the effect of the extraordinary unfavourableness of the seasons, and ought therefore to be regarded, not as a permanent, but as a transitory and occasional event. (I.xi.g.17) Strictly speaking, the real value of silver had fallen in terms of “corn commanded,” but it is because this fall had nothing to do with a change in the labor expended on the production of silver that I suggest he attempted to explain it away by “invoking ‘a transitory and occasional event’” (Peach 2009: 403). Not so, Grieve claims, because Smith was again using the “labor commanded” version of the standard to which he had switched, unannounced, a couple of pages earlier. That being so (or imagined to be so): “the quantity of labor commanded by corn has risen relative to the quantity of labor commanded by silver [and therefore] we may take it that the source of the change in relative values lies with the price of corn” (Grieve 2019: 774). But Grieve seems not to realize that we have no idea about changes in the labor-commanded “real value” of silver or corn unless we know what has happened to the nominal price of labor, on which Smith is silent. Supposing, however, that the silver wage rate rises with the higher price of corn, as might be expected, then the consequent fall in the real price of silver would again arouse the very “suspicion” Smith sought to deny, “that the real value of silver still continues to fall.” To that extent, the switch to “labor commanded”—even if it had been made surreptitiously Smith—would only address what he perceived as the problem on the ad hoc assumption (of which there is no evidence) that the nominal price of labor is invariant to changes in the price of the most important subsistence commodity. A further problem in switching to “labor commanded” would arise from Smith’s own acknowledgement that “the real recompence of labour . . . the real quantities of the necessaries and conveniences of life which are given to the labourer, has increased considerably during the course of the present century. The rise in its money price seems to have been the effect, not of any diminution of the value of silver . . . but of a rise in the real price of labour” (I.xi.g.20). If the “money price” of labor has risen, in this case from a rise in “the real price of labour” (the “real wage,” as we would call it nowadays), the (real) value of silver has fallen, and the appeal to causality only highlights Smith’s reluctance to ascribe a

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change in the real value of silver to anything other than a change in its circumstances of production (the cost of the quantity of labor required to market silver). Almost needless to say, Grieve (2019: 775) has his own take on the above passage: “Peach again seems muddled. As what is at issue is the value of the real wage, it would not have been appropriate to have used the labor-commanded approach; in this case corn-commanded is the appropriate standard.” I disagree. What “is at issue,” I suggest, is again Smith’s determination to rebut “the suspicion that the real value of silver still continues to fall in the European market,” even though his own standard yields a contrary result. Furthermore, of a truly “muddled” pedigree is the suggestion that Smith would have switched back to “corn-commanded” when, in this paragraph, he is evidently supposing that we do know the money price of labor, thus obviating the need to rely on corn, and we know that the “real price of labor” has risen, thus undermining corn’s suitability as a “proxy” measure. Finally, on a lighter note, if Smith had been using “corn-commanded,” based on his “assumption” of a constant labor input to the production of corn, then the resulting unchanged “cost of silver in terms of corn” to which Grieve points would again provide testimony of the very link between “labor expended” and “real price” that Grieve seeks to question: an unintended irony (presumably) of comic proportions. Conclusion Notwithstanding the forceful tone of Roy Grieve’s critique, and his manifest confidence in the accuracy of an interpretation that is evidently believed to gain added luster through its association with “authorities,” I hope to have shown that any semblance of plausibility does not withstand close scrutiny. Grieve cannot represent accurately the position he purports to criticize, he sprays fire at phantom targets of his own creation, his grasp of central concepts (not least the labor theory of value) is inadequate, and he has an arresting propensity simply to ignore material that does not suit his mordacious ends. Yet, on the upside, his polemic nicely illustrates the common, sometimes outraged resistance to interpretations that question an entrenched orthodoxy. The belief that Adam Smith had himself discarded a labor theory of value is one such orthodoxy, and I remain convinced that it is an orthodoxy that deserves to be challenged.

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References Grieve, Roy H. 2019. “On Terry Peach’s Unconvincing ‘Reconsideration’ of Adam Smith’s Theory of Value.” History of Political Economy 51 (4): 753–77. Peach, Terry. 2008. “A Note of Dissent on the ‘Index Number’ Interpretation of Adam Smith’s ‘Real Measure of Exchangeable Value.’” Cambridge Journal of Economics 32 (5): 821–26. Peach, Terry. 2009. “Adam Smith and the Labor Theory of (Real) Value: A Reconsideration.” History of Political Economy 41 (2): 383–406. Peach, Terry. 2010. “Measuring the ‘Happiness of Nations’: The Conundrum of Adam Smith’s ‘Real Measure of Exchangeable Value.’ History of Political Economy 42 (3): 403–24. Smith, Adam. 1776. The Wealth of Nations. London: W. Strahan and T. Cadell.

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