Adam Smith's "Wealth of Nations"

Paper Summary:

This paper examines how "The Wealth of Nations" is undoubtedly a great work, even though Adam Smith's theory of value and distribution represents one of his lesser contributions to economic thought. It discusses how Smith's riddle of the diamond water paradox clearly describes the reasons for his support of an objective theory where he failed to grasp the concept of marginal utility. It also shows that while some commentators argue that Smith purports a cost-of-production theory for value rather than a labour theory, his emphasis is clearly on labour as he measures the cost-of-production in terms of labour.

From the Paper:

"In the 17th century, William Petty abandoned the idea of subjective value and attempted to appoint an objective theory of 'natural value', the actual price of any commodity fluctuating around a natural price. Natural value, according to Petty, was deduced using the factors of production (land and Labour). Adam Smith's publication, The Wealth of Nations, in 1776 signified the beginning of the Classical School, which also directed value debate towards an objective theory. Smith contemplated, but discarded the notion that demand is a function of 'utility'. The utility argument suggests that the more useful something is, the more satisfaction it gives consumers, consequently, they will pay more for it."

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