Ricardo’s theory of value focuses on determining the exchange value of a commodity by evaluating the current and past labour employed in the production of the commodity. The theory determines the past labor by analyzing the cost of capital, which entails aspects such as the value of tools, equipment, implements, and buildings involved in creating a commodity while the current labor entails the quantity of skills input in the production of raw materials.
For example, changes in the exchange rate of a beaver for a deer over time to a tune of one beaver for five deer would mean that the labor input in catching a beaver has increased significantly compared to the labor invested in harvesting a deer. Ricardo’s theory shifts away from the analysis of the fair and equitable value (price) of a commodity to the determination of the quantity of a good or service that the commodity can exchange for in the market. Also, the theory shifts away from evaluating the value of labor in terms of the wages paid to workers and labor-time involved in production to the determination of the quantity of labor input in the production of a commodity.
Ricardo considers that the value of labor keeps expanding with productivity, and thus the use a fixed value of labor to determine the value of a commodity is inappropriate. He advocates for the observation that the present or past value of a commodity is proportional to the comparative quantity of commodities produced by labor rather than the comparative quantity of commodities presented to the laborer as a means of compensation for his input in the production process.
Ricardo’s theory explains that the value of a commodity should be a diminishing variable due to the influence of societal improvements, which allow production to occur with a declining labor output and the capacity for the same labor to expand use-value increases over time (Brue and Randy 114). Ricardo’s theory claims that the price of a commodity will depend more on the capital invested in its production rather than the labor-time value of the commodity. In this regard, investing more capital and less labor-time will translate to a high valuation of a commodity and vice versa. Ricardo relies on the distinction between fixed and circulating capital to categorized living and dead labor.
The employment of circulating capital determines the value of fixed labor embodied in a commodity while the employment of fixed capital determines the value of dead labor in a commodity (Brue and Randy 115). The association of labor with fixed and circulating capital allows Ricardo to eliminate nominal measurements of value in determining the value of a commodity and incorporate aspects of abstract labor to gauge the influence of changes in the living and dead labor. In this regard, factors such as differences in capital-labor ratios, skill requirements and variation in wages do not influence the value of a commodity. Ricardo’s theory allows the determination of a relative value of a commodity rather than its equitable value because of the lack of a universal form of exchange, such as money, upon which one can peg the exchange value of a commodity. For example, slave labor and wage-labor produce goods or services, which constitute of labor value despite the obvious variation in the level of compensation for the two forms of labor.
Works Cited
Brue, Stanley, and Randy Grant. The evolution of economic thought. 7th ed. Mason, OH: Thomson/South-Western, 2007. Print.