University of Ottawa ECO 3132 History of Economic Thought Paper

Description

ECO 3132 History of Economic Thought
The  paper cannot exceed 8 typed pages (double spaced, i.e., approximately 250 words per page or a total of 2,000 words), excluding bibliography. The deadline for the paper submission is December 7, 2021.
Adam Smith’s Cost of Production Theory of Value versus David Ricardo’s Labour Theory of Value
Adam Smith and David Ricardo are the best-known advocates of the labor theory of value (LTV). The two classical economists theorized how the value of a commodity was determined. They focused on the impact of production and labor on profits. Smith developed the cost of production theory of value, which states that the price of a commodity is determined by adding all the resources involved in producing it (Taylor, 1996). He explained that the value or the natural price of an object is obtained by adding the cost of production. Value is divided into ‘value in use,’ which defines the utility of the commodity and ‘value in exchange’, which entails the power of purchasing goods (Smith, 2019). In his explanation, Smith stated that in a nation of hunters, the cost of killing a beaver is twice higher than that of a deer (Taylor, 1996). This is because it takes more labor hours to trap and kill a beaver than a deer. Ideally, Smith attributed the cost of production to both direct and indirect labor time.
On the other hand, Ricardo’s labor theory of value (LTV) provides how prices of commodities are governed. It states that the value of the commodity for which it is exchanged is determined by the quantity of labor used to produce it (Ricardo, 2014). Although Ricardo and Smith agreed that labor is a crucial part of the commodity’s exchange value, the former was consistent in his approach. For instance, Ricardo showed that the value of an object is independent of labor quantity and that variation in wealth also affected its production (Taylor, 1996). Therefore, Ricardo’s theory of value approach is more comprehensive than Smith’s cost of production.

Explanation & Answer:
2000 words

Tags:
economic growth

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