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Essay on Theory of Value: An overview
The labor theory of value (LTV) is a theory in economics and political economy concerning a market-oriented or commodity-producing society: the theory equates the "value" of an exchangeable good or service (i.e., a commodity) with the amount of labor required to produce it.
The dominant view sees this as a theory of price determination in competitive markets, a substitute for the neoclassical theory of price determination. But to others, it is a tool for understanding the social relations of production, more of a historical and institutional theory than a price theory.
Adam Smith, David Ricardo, and Karl Marx are most often associated with this theory. However, elements of the theory are older, going back to John Locke.
Adam Smith distinguished between "nominal value" (the amount of money one would exchange for a given commodity) and "real value" (the amount of labor required to produce an object). Making matters confusing, he also used a "labor commanded" definition of value, referring to the real value of a product as the amount of labor that could be purchased by selling it. (Wikipedia, 2005)
Adam Smith’s labor theories of value
Adam Smith (1976 [1776]: 10) began the Wealth of Nations with the bold assertion that national wealth is due to labor.
This passage establishes two points. First, Smith claims that the annual labor produces the annual consumption of the nation. This is true in civil society as well as primitive society, since international trade only occurs in civil society. The omission of land and capital is striking, especially in such a celebrated book on capitalism. Aside from “the spontaneous productions of the earth,” which Locke (1967 [1690]: 294-5) also mentioned, Smith (1976 [1776]: 332) treated land as productive only when labor worked it or gathered things from it.........
