Adam Smith and David Ricardo's labor Theory of Value.
The labor theories of value were generated in response to the quest to determine what constitutes the price or value of a commodity, in other words, what renders value to a commodity? Classical theorists like Smith and Ricardo opine that a commodity derives its value from labor that goes into its production. In the labor theory of value, the amount of labor necessary to produce a given commodity was considered the 1"common denominator". And as an extension of the value theory, labor itself is essentially a commodity. Like all other things, labor is bought and sold (for wages) and has a natural and market price. The natural price of labor is that price which is necessary to enable the laborer, one with another, to subsist and to perpetuate their race without either increase or diminution (iron law of wages).
I will first present Smith's labor theory of value, followed by Ricardo's labor theory of value, in essence because it served as the basis of Ricardo's labor theory of value. In fact Ricardo's labor theory of value went hand in hand with his critique of Smith's labor theory. .
Smith Labor Theory of Value:.
The labor theory of value was a by-product of Adam Smith's attempt to explain and theorize the accumulation of capital. He began his study of political economy by examining simple concept such as labor, division of labor, demand, supply etc. In his analysis of society, Smith observed that in a civilized society each laborer works for and is dependent upon the labor of others, in other words, division of labor regulates socio-economic relations. It is from this analysis that his discussion of value springs. A commodity acquires exchange value because of the prevalent division of labor.
Smith observed the fact the price of many commodities although varied in accordance with the fluctuations of supply and demand, seemed to revolve around a sort of average price.