“Whatever regulations, therefore, tend to increase those wages and profits beyond what they otherwise would be, tend to enable the town to purchase, with a smaller quantity of its labour, the produce of a greater quantity of the labour of the country” ([O.U.P., Vol. I, pp. 140-41; Garnier] l.c., pp. 258-59).” (p 232)
In this quote, Smith returns to his original theory of value determined by labour-time. The town sells commodities to the country which obtain for the town a greater quantity of labour-time than it has itself expended.
“If the prices of the commodities which are exchanged between town and country are such that they represent equal quantities of labour, then they are equal to their values.” (p 232-3)
If the products of the town and country exchanged according to the labour contained in them, then they would exchange at their values. But, then it would be clear that the amount of wages and profits on each side of the exchange would have to be determined by the amount of value, and not the value by the level of wages and profits.
The people in the towns become organised in these guilds and other organisations, and the towns themselves become incorporated. The towns and cities thereby confront an atomised countryside as a more collective body. The various rules and regulations that arise from it are a manifestation of the bourgeoisie becoming a class for itself.
“This is an act, no longer of the town bourgeoisie, but of the bourgeoisie already legislating on a national scale as the corps de nation or as the Third Estate of the State Assembly or the Lower House. The specific acts of the town bourgeoisie—directed against the country—are the excise and duties levied at the gates, and, in general, the indirect taxes, which have their origin in the towns (see Hüllmann), while the direct taxes are of country origin. It might appear that the excise, for example, is a tax which the town imposed indirectly upon itself. The countryman must advance it, but reimburses himself in the price of the product. But this was not the case in the Middle Ages. The demand for his products—in so far as he converted these into commodities and money at all—[was, in so far as it came] from the town, mostly compulsorily restricted to the area under the jurisdiction of the town, so that he did not have the power to raise the price of his product by the full amount of the town tax.” (p 234-5)
But, Smith also notes the disadvantages of the division of labour. The more the worker is reduced to performing the same repetitive tasks, the power of labour increases, but it is the power of social labour that rises, whilst the individual factory labour is thereby diminished, compared to the agricultural worker, who must adjust their work to changing weather conditions, to use their judgement and so on.
“The division of labour develops the social productive power of labour or the productive power of social labour, but at the expense of the general productive ability of the worker. This increase in social productive power confronts the worker therefore as an increased productive power, not of his labour, but of capital, the force that dominates his labour. If the town labourer is more developed than the country labourer, this is only due to the circumstance that his mode of work causes him to live in society, whereas that of the agricultural labourer makes him live directly with nature.” (p 234)
In Chapter XI, of The Wealth of Nations, Smith turns to the determination of a natural rate of rent, as part of the cost of production of commodities. Before examining that, Marx turns first to an examination of Ricardo's theory of differential rent.
In summarising, Marx says that Smith identifies the price of production of the commodity with its value. To do so, he must abandon his initial correct theory of value based on labour-time. The idea that it is the price of production that is the regulator of market price derives from the appearance created by competition.
Each firm appears to be presented with a series of predetermined costs of production. There appears to be a level of wages it must pay, a level of rent charged by landlords, a rate of interest on capital it borrows, and on the basis of these costs of production a natural rate of profit appears to exist, all of which, in total form the value of the commodity.
If market prices vary from this, it seems only to be a consequence of variations in demand and supply.
“Hence Adam Smith tries to establish these separately and independently of the value of the commodity— rather as elements of the natural price, Ricardo, whose main concern has been the refutation of this Smithian aberration, accepts the result that necessarily follows from it—namely the identity of values and cost-prices—although with Ricardo this result is logically impossible.” (p 235)
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