Adam Smith On A Labor Theory Of Value

The following are the first three paragraphs of the introduction to the Wealth of Nations:

"The annual labor of every nation is the fund which originally supplies it with all the necessaries and conveniencies of life which it annually consumes, and which consist always either in the immediate produce of that labour, or in what is purchased with that produce from other nations.

According, therefore, as this produce, or what is purchased with it, bears a greater or smaller proportion to the number of those who are to consume it, the nation will be better or worse supplied with all the necessaries and conveniencies for which it has occasion.

But this proportion must in every nation be regulated by two different circumstances: first, by the skill, dexterity, and judgment with which its labour is generally applied; and, secondly, by the proportion between the number of those who are employed in useful labour, and that of those who are not so employed. Whatever be the soil, climate, or extent of territory of any particular nation, the abundance or scantiness of its annual supply must, in that particular situation, depend upon those two circumstances." -- Adam Smith

When people talk about Adam Smith having a labor theory of value, they are not normally referencing the above. They are usually thinking of his few pages on a supposed "early and rude state of society which precedes both the accumulation of stock and the appropriation on land (book 1, chapter 6; see also book 1, chapter 8). Or they are thinking of his use of labor commanded as a measure of welfare (book 1, chapter 5).

But consider the above quotation. One can break down the annual labor of a nation in several ways. One can look at the proportion of the labor of the country which is needed to produce the necessaries for the entire labour employed. The remaining labour produces commodities that make up profits, interest, rent, payments to unproductive laborers, and so on.

This surplus can be consumed as necessaries and conveniences of life. One might call the latter luxuries. Or it might be used for accumulation. If the size of the labor force is to grow and the consumption of the individual worker is not to decrease, some of it must be used for accumulation. Smith thought that as the market increased, so would the division of labor. In a virtuous cycle, a greater proportion would be available for accumulation.

So in the very beginning of his most well-known book, Adam Smith points to the question of the size, distribution, and use of the surplus.