“It has been observed by Adam Smith, that ‘the word Value has two different meanings, and sometimes expresses the Utility of some particular object, and sometimes the power of purchasing other goods which the possession of that object conveys. The one may be called value in use ; the other value in exchange. The things,’ he continues, ‘which have the greatest value in use, have frequently little or no value in exchange; and, on the contrary, those which have the greatest value in exchange, have little or no value in use.’ Water and air are abundantly useful; they are indeed indispensable to existence, yet, under ordinary circumstances, nothing can be obtained in exchange for them. Gold, on the contrary, though of little use compared with air or water, will exchange for a great quantity of other goods.There are three points here:
Utility then is not the measure of exchangeable value, although it is absolutely essential to it. If a commodity were in no way useful,—in other words, if it could in no way contribute to our gratification,—it would be destitute of exchangeable value, however scarce it might be, or whatever quantity of labour might be necessary to procure it.
Possessing utility, commodities derive their exchangeable value from two sources: from their scarcity, and from the quantity of labour required to obtain them.
There are some commodities, the value of which is determined by their scarcity alone. No labour can increase the quantity of such goods, and therefore their value cannot be lowered by an increased supply. Some rare statues and pictures, scarce books and coins, wines of a peculiar quality, which can be made only from grapes grown on a particular soil, of which there is a very limited quantity, are all of this description. Their value is wholly independent of the quantity of labour originally necessary to produce them, and varies with the varying wealth and inclinations of those who are desirous to possess them.” (Ricardo 1821: 1–2).
(1) Ricardo in paragraph two seems to be on the point of understanding subjective utility, but doesn’t quite get there, because he cannot seem to extend the word “gratification” to include subjective value.It seems to me that Marx’s labour theory of value (LTV) was a regression from Ricardo, because at least Ricardo allowed a fundamental role for scarcity in determining exchange value. In volume 1 of Capital, Marx dispensed even with scarcity as a fundamental determinant of exchange value, when clearly scarcity plays a major part in determining the prices of, say, primary commodities sold in flexprice markets.
(2) in Ricardo, exchange values of commodities with utility are determined by two factors: (1) scarcity and (2) the quantity of labour required to obtain them.
(3) when Ricardo discusses non-reproducible goods like antiques, pictures, scarce books, coins, and wines, he sees that the “inclinations of those who are desirous to possess them” have a major role in price determination. Again, he is grasping at the concept of subjective utility.
And it is clear that Marx’s labour theory of value requires another limitation: it is limited not only to commodities produced for exchange but also to those that are readily reproducible commodities that can be considered fungible.
In volume 3 of Capital, Marx admits that the prices of things which “cannot be reproduced by labour, such as antiques, works of art by certain masters, etc. … may be determined by quite fortuitous combinations of circumstances” (Marx 1991: 772). So this eliminates another category of goods from those that supposedly can be explained by Marx’s LTV.
When we also consider that, for Marx, land, since it is not a product of labour, has no labour value, and hence its price is not explained by abstract labour time, we have increasingly more and more goods whose prices cannot be explained by LTV.
Marx, Karl. 1991. Capital. A Critique of Political Economy. Volume Three. (trans. David Fembach). Penguin Books, London.
Ricardo, David. 1821. On the Principles of Political Economy and Taxation (3rd edn.). John Murray, London.