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In his formidable treatise, Principles of Political Economy and Taxation (1817), Ricardo finally articulated and integrated a theory of value into his theory of distribution.
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In his formidable treatise, Principles of Political Economy and Taxation (1817), Ricardo finally articulated and integrated a theory of value into his theory of distribution. For Ricardo, the appropriate theory was the "labor-embodied" theory of value or LTV, i.e. the argument that the relative "natural" prices of commodities are determined by the relative hours of labor expended in their production. Indeed, he began his 1817 book by criticizing Adam Smith's alternatives -- the "labor-commanded" and "adding up" theories of value -- because, he argued, that made value a function of wages and thus income distribution. For Ricardo, this was untenable. In his vision, value was independent of distribution, and thus only the "labor-embodied" theory made sense. However, Ricardo realized that when the question of capital comes in, a problem arose: specifically, as different industries apply different amounts of capital per laborer, then the rate of profit will also differ across...
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