Smith and Ricardo like other classical political economists shared many common points in their approach to developing a theory of value. Third, they both to subscribed to subsistence theory of wages (Ricardo’s ‘iron law of wages’ stating labors get the minimum required wages). 7For Smith rate of profit would fall because of growing competition among entrepreneur and he was optimist about this development. to explain and theorize the accumulation of capital. Apart from these, fluctuations of demand and supply affect the market value of a commodity. Ricardo on the other hand, attributed the rise of prices and fall of profit to the increasing difficulty of growing food for the expanding population. The labor command theory is more relevant for the market price of a commodity. The labor cost theory deals with the actual embodied labor that goes in producing a commodity and is linked to the natural price of a commodity.
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.
Ricardo attacked Smith’s assumption that the quantity of commendable labor can be usefully regarded as an “invariable” measure of value, when in fact labor is subject to as many fluctuations as the commodities compared with it (supply, demand) . In other words, the real worth of a commodity is its power of purchasing labor itself, as distinct from its power of purchasing the product of labor.
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