Jeffrey Young writes Adam Smith’s Theory of Value and Distribution: Economics as a Moral Science Once Again not to to offer a comprehensive interpretation of Adam Smith’s work. But, in practice, he does, even if his goal is to reinterpret Smith’s theory of value as an application of the theory of supply and demand, thus offering an alternative to the Ricardian, Marxian, and Sraffian interpretation of Smith having a labor theory of value. But this supply-and-demand explanation is not quite the standard textbook one. Here, agents are engaged in price discovery rather than being price takers; and the economic agents are moral beings rather than utility maximizers.
The book opens with three “Preliminaries” chapters. Here, the tone is set: Adam Smith and Karl Marx do not share a common philosophical background and “are not philosophically compatible” (p. 7). Marx is claimed to be working within an ancient metaphysics, which Smith rejects in favor of a Newtonian science. Marx looks for essences; Smith wants to describe how things work instead.
Young sees Smith as working in a moral framework. Economics was, after all, a moral science. This is why, for him, Smith understands justice, property rights, and the division of labor and exchange as emerging spontaneously from natural sentiments of ordinary people. They cannot be explained by an ex ante knowledge of their benefits. The implication, for Young, is that Smith is not a utilitarian but rather a consequentialist.
In the central part of the book, the part on “Value,” Young usefully explains the difference he sees in Smith’s use of rules and principles. Rules emerge contextually, while principles are philosophical constructs: “Ordinary people create rules, philosophers create principles as they reflect upon those rules” (p. 63). From this, it follows that value theory is about the rules that people establish to exchange. And the rules of supply and demand, as Francis Hutcheson taught Smith, express the interaction between scarcity and utility, within a natural law framework.
Young goes on to explain that, for Smith, the nominal price is a price expressed in money, while the real price is a price expressed in labor, which makes labor a standard of value, not necessarily a cause of it. Exchange value is a power, and that “power ultimately derives from wants” (p. 74). Wants and toils are universal human experiences, which allows for a sympathetic exchange. The toil and trouble will thus give rise to a just claim to receive compensation: “Cost for Smith always seems to carry the notion of just claim to be compensated” (p. 112). This will also include the opportunity cost of using both capital and land, as Young explains in later chapters. Smith’s value theory is thus not following the Marxian problem of determination of value, but it is imbedded in justice.
The potentially more problematic example of the beaver and deer hunters, for Young, is not necessarily about the causal determination of the relative price structure but rather explains that
the rule for exchanging beaver and deer is a maxim that guides human behavior in a society where interactions are on a personal level. If it is commonly known that the deer hunter ‘usually’ takes half the time to get his deer than the deer hunter to get his beaver, then the exchange rate would emerge inductively by common consent, in conversation about neighbors, not in a marketplace. It would initially take the form of reciprocity norm: exchange should, in some sense, be equal, and hours of toil and trouble seem to present themselves as a natural equalizer in this context. (p. 99)
The difference between rules of justice and rules of gratitude is important here, for Young. It is gratitude that allows for these reciprocal gift-giving interactions. When property becomes valuable enough, the failure to reciprocate may change into an enforceable rule of justice.
With this in mind, Young describes how Smith does not have a cost-of-production theory either. Natural prices are not directly observable but are a sort of lower bound below which the actual price cannot fall for a significant amount of time. Combined with the idea of effectual demand, market interactions allow for a process of price discovery (rather than a price-taking process).
The third part of the book is about distribution, and Young opens it by showing how Smith can be seen as a better Rawlsian than John Rawls. Smith cares about the well-being of the majority of the population, which, in his time, happened to be the working poor. The working poor need to be fairly compensated and the labor market free from regulations that favor unfair inequalities. Guaranteeing the well-being of the least well-off allows for “Smith’s recommendations [to be] much more extensive than Rawls’s” (p. 163).
The last few chapters are detailed and explicit explanations for how Smith’s theory of value is not Ricardian, Marxian, or Sraffian.
One of the most valuable parts of the book, in this reader’s view, is the explanation of how Smith handles value theory in terms of his national accounting exercise, quite similar to today’s textbook one. Another is the grounding of it in the presence of the impartial spectator and the subsequent focus on economic agents as moral agents, reconsidering again economics as a moral science.
