Adam Smith’s Theory of Value and the Falling Rate of Profit: Uncommon Conceptions and Common Misconceptions

Lefteris Tsoulfidis ()

MPRA Paper from University Library of Munich, Germany

Abstract: Smith's theory of value and distribution, which emphasizes labor time as the determinant of prices, has been widely misunderstood. Ricardo misinterpreted it as relevant only to primitive societies, while Marx mistakenly aligned it with his own labor theory of value. In reality, Smith’s perspective oscillates between a labor-based and a labor-commanded approach to relative prices, intended for modern economies. Neoclassical economists further distorted Smith’s views by incorporating utility theory. Moreover, while Smith is often linked to the theory of a falling rate of profit due to competition, he actually attributed it to rising capital intensity. Contrary to the belief that Smith was a staunch advocate of free markets, he supported reasonable government intervention.

Keywords: Labor theory of value; falling rate of profit; labor commanded; capital intensity (search for similar items in EconPapers)
JEL-codes: B00 B31 B51 N00 (search for similar items in EconPapers)
Date: 2024, Revised 2025-05-20
New Economics Papers: this item is included in nep-hpe, nep-pke and nep-upt
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Published in Investigación Económica 330.83(2024): pp. 28-52

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