Ricardo, like Smith, fails to make this distinction between an embodied labour theory of value, and a labour theory of value based upon socially necessary labour.
It is only because commodity A and commodity B, already possess such value, independently of their exchange-value, and independent indeed of them being placed in the market as commodities, that they can be brought into any meaningful relation in the first place. That relation occurs, as Marx and Engels describe, initially, not as commodities, but as products. It occurs as a result of occasional contact between different tribes, notably, at first of nomads. The first exchanges take place as part of ceremonies, as members of one tribe marry members of another, and so on. Inevitably, such exchanges take place not on the basis of exchange values, of exchanges of equal amounts of value, but haphazardly, with a community rich in one type of product offering it in exchange, for a different product from the other community. It is only as these contacts increase, and trade develops, particularly through the intermediation of specialist merchants acting on behalf of the different communities that the merchants are able to measure the labour-time required for production of different commodities, by different communities, and so as a result of arbitrage, the exchange-values of these commodities eventually emerge, based upon the underlying values of the products being exchanged.
If we examine the proposition put by the author of the “Observations”, they equate value and exchange-value, arguing that if the labour required for the production of all commodities, bar one, rises, then the value of this one falls, relative to all the others. But, if the labour required for the production of all these commodities remains the same, whilst the labour required for the production of the one falls, the same relative change of values would occur. So, what should we then conclude that the value of all these other commodities has risen?
The author continues.
““Mr. Ricardo tells us indeed […] that ‘the inquiry to which he wishes to draw the reader’s attention relates to the effect of the variations in the relative value of commodities, and not in their absolute value’; as if he there considered that there is such a thing as exchangeable value which is not relative” (op. cit., pp. 9-10).
“That Mr. Ricardo has departed from his original use of the term value, and has made of it something absolute, instead of relative, is still more evident in his chapter entitled ‘Value and Riches, their distinctive Properties’. The question there discussed, has been discussed also by others, and is purely verbal and useless…” (op. cit., pp. 15-16).” (p 125-6)
Introduced here is a further element of confusion, in the form of use value, as well as value and exchange-value. Again, it is Ricardo's own lack of clarity, in his exposition, which opens up the potential for attack. Marx notes,
“In his chapter on “Value and Riches”, he argues that social wealth does not depend on the value of the commodities produced, although this latter point is decisive for every individual producer. It should have been all the more clear to him that a mode of production whose exclusive aim is surplus-value, in other words, which is based on the relative poverty of the mass of the producers, cannot possibly be the absolute form of the production of wealth, as he constantly asserts.” (p 126)
In other words, real wealth is a function of use-value. A society is all the richer, the greater the variety and quantity of use values it produces. But, Ricardo, of all people, who argued, as against Smith, that the most important aspect of capitalist production was the size of the net product, as opposed to the gross product, should thereby have recognised that capitalist wealth is not at all measured in terms of the production of use values, but exchange-value. And, this contradiction between use value and exchange-value, which is united within the commodity, is one potential cause of crises. The value of a commodity exists independently of its use value, which is manifest in the fact that a given amount of value can be embodied in a widely different quantity of use values, and indeed any given use value may contain a different amount of value today than it did yesterday, as a consequence of changes in productivity, which increase or reduce the labour-time required for its production.
If productivity rises, 100 metres of linen, which previously required 10 hours of labour-time to produce, now only requires 9 hours, and so the value of each metre has fallen from 0.10 hours to 0.09 hours of value. Put another way, 10 hours of labour would now produce 110 metres of linen, so that, in terms of use value, social wealth has risen, but, in terms of value, there has been no change. If we consider this from the perspective of exchange-value, then let 1 hour of labour equal the value of 1 gram of gold given the name €1. Here, 100 metres of linen initially had an exchange value of €10. Following the rise in productivity, it only has an exchange value of €9. If production rises to 110 metres, this increased quantity of use value, now still only has the previous exchange-value of €10.
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