The Classical Theory of Value and Distribution

The theories of value and distribution of Smith, Ricardo and Marx are presented and critically assessed so that they may become operational and, therefore, useful. We explain Ricardo’s successes and failures by referring to his numerical examples, from which we try to extract the core of a realistic approach to the estimation of natural prices as the centre of gravitation for market prices. We argue that Ricardo’s theory of value is intertemporal in character and its fundamental premise can be tested empirically. The discussion of Marx’s labour theory of value follows immediately after, and we explain his notions of abstract labour time, the two senses of socially necessary labour time as well as the concept of labour power. The latter enabled Marx to show the exploitative nature of the capitalist system and the production of value and surplus-value, all discovered through and evaluated by labour time. We further argue that the economic theories advanced by the old classical economists and Marx along with more recent theoretical developments following Sraffa’s (Production of commodities by means of commodities: A prelude to economic theory. Cambridge, UK: Cambridge University Press, 1960) book share the same set of data and may be fruitfully integrated into the classical political economics (CPE).