labour theory of value

labour theory of value
The idea that labour is the ultimate source of all wealth—a commonplace among the early political economists. Adam Smith, for example, argued that, in a market society in which workers owned their own means of production, the prices of goods would be proportional to the amount of labour required to produce them. However, where a class of non-labouring capitalists hired a propertyless class of workers to do the labouring, then competition in the market would establish an average rate of profit, such that capitalists would price goods at a level at which they could pay their workers a fair wage, and retain a profit equal to the average yield on capital. In this way, Smith (and later David Ricardo) used the idea as part of a justification for the existence of, and for the privileges associated with, the ownership of private property.

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