Saturday, May 12, 2007

Smith May Not Have Applied a Labour Theory of Value to Multi-factor products, including Whisky

Division of Labour is one of the popular (with discerning folks) Blogs on the go, but it suffers from one small defect, in my opinion; it does not have a comments facility, nor is it clear how to communicate with the eleven economists who are listed as its Bloggers. If it did accept comments, I would have posted on today’s Blog from Lawrence H. White (F. A. Hayek Professor of Economic History • Department of Economics, University of Missouri - St. Louis) a comment on his post ‘Scotch versus the Labour Theory of Value’.

The gist is that Lawrence White posed a question in his History of Economic Thought class glad to note that the University of Missouri has such a class, one of the few in the world): “How is the labor theory of value inconsistent with rate-of-return arbitrage?”

A student wrote a brief answer: “It doesn’t factor in value added by time, such as aging Scotch”, which impressed him so much he intends to work it into his course next year. To which Lawrence White adds:

The price differences between young and old Scotch are so systematic and so obvious, it’s a wonder that the Scotsman Adam Smith did not notice and repudiate the labor theory of value.

A good line, I admit. But it begs the question of whether Smith had to repudiate the labour theory of value in the sense that Lawrence seems to mean, specifically that he had such a theory for society after the ‘early and rude state of society’. I find the evidence ambiguous and I do not have space on Lost Legacy to develop the argument based on Wealth Of Nations, though I do in my manuscript for my new book on Adam Smith, to be published in 2008.

To clarify Smith’s association with a labour theory of value it is necessary to read Chapters IV, V and VI of Book I of Wealth Of Nations as a whole and cut through the bits of a tangle Smith gets into, while he integrates his analysis with his four ages of mankind from his Lectures In Jurisprudence. He did not apply a labour theory of value to society after the invention of property and the need for prices to cover the owners of the factors of land, labour and capital within market prices.

I should also note that Scotch whisky in mid-18th-century Scotland was not a brand run business as it is today with anything nearly as precise as a ‘750ml bottle of Glenlivet single malt 12 years old selling for $30 while the same size and proof of Glenlivet single malt 15 years old sells for $45, and Glenlivet 18 years old sells for $62’.

A shot at the history of whisky (spelt in the US as Whiskey) can be found in that excellent 1975 volume, Mountain Spirits, by Joseph Earl Dabney, Bright Mountain Books, North Carolina, Chapter 3.

In Scotland in Smith’s time whisky was sold in various containers, was not regulated to great effect by the excise and had an air of a slightly ‘informal’, risque product. Smith apparently drank local beer and French claret.

2 Comments:

Blogger Lawrence H. White said...

Gavin,

Thanks for the clarification. Fair enough. Smith famously exposits the LTV via the deer-beaver example, but he elsewhere seems to offer an adding-up-of-costs theory. Does he clearly say that the former applies to early and rude society, the latter once property has been introduced? Or the former when labor is the only factor of production, the latter when there are multiple factors?

BTW, I'm sorry we seldom allow comments on Division of Labour. We have the option to turn on the comments, but we get mercilessly spammed when we do.

4:47 a.m.  
Blogger Gavin Kennedy said...

Lawrence

Thank you for your comments. I understand about comments and spam. As I would normally comment direct on a Blog presented by academic economists, I felt it necessary to explain to my (few) readers why I was not doing so in this case.

Rather than develop a long exposition on Smith and the Labour Theory of Value I have posted to you for your personal interest my draft Chapter 8: ‘Smith on the labour theory of value’, from my forthcoming book for Palgrave’s new 28-volume series of Great Thinkers in Economics.

As this is a draft it is not checked for the usual final errors and omissions, please treat it as such; but I would be interested in any comments you wish to make.

Gavin

10:36 a.m.  

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