Ricardo quotes Adam Smith, who, according to him, "so accurately defined the original source of exchangeable value" (Adam Smith, Wealth of Nations , Book I, Chap 5 [Full reference: An Inquiry into the Nature and Causes of the Wealth of Nations , first edition appearing in London, 1776]), and he adds:
"That this (i.e., labor time) is really the foundation of the exchangeable value of all things, excepting those which cannot be increased by human industry, is a doctrine of the utmost importance in political economy;for from no source do so many errors, and so much difference of opinion in that science proceed, as from the vague ideas which are attached to the word value."(Vol.I, p.8)
"If the quantity of labor realized in commodities regulate their exchangeable value, every increase of the quantity of labor must augment the value of that commodity on which it is exercised, as every diminution must lower it."(Vol.I, p.8)
Ricardo goes on to reproach Smith:
With having "himself erected another standard measure of value" than labor.
"Sometimes he speaks of corn, at other times of labor, as a standard measure;not the quantity of labor bestowed on the production of any object, but the quantity it can command in the market." (Vol.I, pp.9 and 10)With having "admitted the principle without qualification and at the same time restricted its application to that early and rude state of society, which precedes both the accumulation of stock and the appropriation of land". (Vol.I, p.21)Ricardo sets out to prove that the ownership of land, that is, ground rent, cannot change the relative value of commodities and that the accumulation of capital has only a passing and fluctuation effect on the relative values determined by the comparative quantity of labor expended on their production.
In support of this thesis, he gives his famous theory of ground rent, analyses capital, and ultimately finds nothing in it but accumulated labor. Then he develops a whole theory of wages and profits, and proves that wages and profits rise and fall in inverse ratio to each other, without affecting the relative value of the product. He does not neglect the influence that the accumulation of capital and its different aspects (fixed capital and circulating capital), as also the rate of wages, can have on the proportional value of products. In fact, they are the chief problems with which Ricardo is concerned.
"Economy in the use of labor never fails to reduce the relative value [2] of a commodity, whether the saving be in the labor necessary to the manufacture of the commodity itself, or in that necessary to the formation of the capital, by the aid of which it is produced."(Vol.I, p.28)
"Under such circumstance the value of the deer, the produce of the hunter's day's labor, would be exactly equal to the value of the fish, the produce of the fisherman's day's labor. The comparative value of the fish and the game would be entirely regulated by the quantity of labor realized in each, whatever might be the quantity of production, or however high or low general wages or profits might be."(Vol.I, p.28)
