iences, and amusements of human life. But after the division of labour has once thoroughly taken place, it is by the very small part of these with which a man's own labour can supply him. The far greater part of them he must derive from the labour of other people, and he must be rich or poor according to the quantity of that labour which he can command, or which he can afford to purchase. The value of any commodity, therefore, to the person who possesses it, and who means not to use or consume it himself, but to exchange it for other commodities, is equal to the quantity of labour which it enables him to purchase or command. Labour, therefore, is the real measure of the exchangeable value of all commodities.10

We shall have occasion to observe presently how Smith restrained himself from following this clue in the direction which Marx afterward took. We may notice, in passing, that, although Smith very distinctly reiterated the same theorem when discussing the wages of labor (Chap. VIII), he approached it as an explanation of the problem of value in general and of price in particular. It did not occur to him as a class question at all. He was in the course of explaining the mechanism of civilized exchanges, and his assumption was that the mechanism was working normally. He was not searching for a clue to a situation which he considered abnormal. Prac

10 Cf. Chap. VI, 4th paragraph, p. 48; also p. 50, 2d paragraph.

tically no grievances were alleged against the essential structure of the economic system. Such charges as were brought against social arrangements at this time were principally political in form, whatever might have been their implicit economic content. The antithesis of labor and capital, as social categories, was at that time virtually unknown. Labor and capital were purely economic categories, and could be treated as abstractions, whether on the debit or credit side of the reckoning, without provoking class prejudice. Precisely the opposite was the case when Marx wrote, and this was at all events an important factor in deciding that in Marx's hands a labor theory of value became directly a class issue instead of a mere technical distinction.

Then we must make note of another effect upon Smith's mind of the presumption that the system which he tried to explain was operating normally. That is, he was phenomenally unconscious, as it appears after a century of closer analysis, that commonplace, everyday exchanges could not be accounted for by his extremely naïve theory of price. It would be easy for us to make an a-priori argument to the effect that a man so wise as he could not possibly have overlooked, as he did, some of the plain gaps between the facts and his explanation; but the reason is

evidently to be found in his disregard of the artificial and arbitrary social arrangements by which civilization complicates the simple order of human actions. In other words, when he attempted to explain the phenomena of price, his logical process seems to have been, first, a generalization of the simplest conceivable exchanges of the products of labor into the type of all exchanges. Then, instead of using that generalization merely as a search hypothesis-i. e., to guide a complete induction he used it as a principle for explaining all exchanges deductively. Of course, this amounts logically to begging the question with respect to every case of exchange which is not used as a means of testing the generalization. That is, such a principle once adopted for such use is a blind leader of the blind. It glosses over the facts instead of exposing them.11

When Smith says, for instance, "Labour was the first price, the original purchase money that was paid for all things," 12 he overpersuades himself, more than he is aware, that the same is true in the same degree in all purchases. For our present purpose it is enough to point out that the result was an intolerable vagueness

11 This would be an instance, therefore, illustrating the fault which Bagehot charges to Adam Smith. Cf. above, p. 68.

12 P. 30.

and approximateness in his theory of exchanges. Thus he says:

13

The real price of everything, what everything really costs to the man who wants to acquire it, is the toil and trouble of acquiring it. What everything is really worth to the man who has acquired it, and who wants to dispose of it or exchange it for something else, is the toil and trouble which it can save to himself, and which it can impose upon other people."

It is by no means clear precisely what Smith meant by these propositions, but any version that might be proposed would be ruled out, as an adequate formula of exchanges, by types of cases which could not be so explained. This. however, has been the theme of a voluminous economic literature for nearly a century. Our argument does not call for an examination of the progress of analysis on this point. We may simply note, by way of illustration, that no formulation of the mere mechanism of economic exchanges can possibly express the essential facts of value and price. These are phenomena resulting from more than one variable. They are psychical and social as well as mechanical. There

13 Ibid.

14 I refrain from turning any light from the "marginal utility theory" upon Smith. According to the outline of analysis of which this essay is a detail, that development must be noticed in its chronological order.

is probably a certain minute portion of the "toil and trouble" element in every case of value, but whether it is the "toil and trouble" which it actually costs the producer to produce it, or the "toil and trouble" trouble" which it would cost the purchaser to produce it, or it, or the "toil and trouble" to which the purchaser would be liable if he had to go without it, actual exchanges in civilized society could not be expressed uniformly in terms of either concept. "Toil and trouble" as an equivalent for the term "labor expended in production" can in very few cases be an equally approximate measure of the reason. why the seller sells and why the buyer buys. Value or price sometimes has one ratio to the labor-cost of production or of reproduction, and sometimes a quite different ratio. These familiar considerations may be summed up in the platitude: Price or value is a phenomenon of two chief variables; viz., first, the conditions governing the supply, and, second, the conditions governing appreciation as a factor of demand.1

15

In a word, Smith's attempt at an explanation of price and value credited labor-cost with too

15 Cf. Simmel, "A Chapter in the Philosophy of Value," American Journal of Sociology, Vol. V, p. 577. For further concrete illustrations of the lack of precision in Smith's labor theory of value, see Bagehot, Economic Studies, pp. 121 ff.