Classical Economic Theory Part 3

Value

The views of Adam Smith (1723-1790) on the concept of value can be divided into 2 parts namely the use value and value exchange. This raises the paradox of value, ie goods that have value usage (guna_ a very high value, such as water and air, but has a very low exchange value. In fact, virtually has no exchange value. While on the other hand the value of goods worth less but can have a high exchange value, such as diamonds. This recently completed by the teachings of subjective value.

David Ricardo (1772-1823) a prominent classical flow states that there is value exchange if the item has a value of usability. Thus, something good can be exchanged if the item can be used. Someone will make something good, because it has a use value of goods needed by the people. Furthermore, David Ricardo (1772-1823) also makes a distinction between items that can be created and or reproduced in accordance with the wishes of people, on the other hand there are goods that are limited or monopoly goods (eg paintings of famous artists, antiquarian, the grapes are just grown on the slopes of certain mountains and so on). In this case for goods that are limited to the value is very subjective and relative according to the willingness to pay of potential buyers. As for the production of goods that can be added in accordance with the wishes of the penukarannya value based on the necessary sacrifices.

David Ricardo (1772-1823) suggested that the difficulties arising from the teachings of the value of work:

1. Please note the quality of work, there is the quality of educated and uneducated labor, quality of work skills and so forth. The classical flow in this case does not take into account working hours used for the manufacture of goods, but the number of regular working hours and should be required to produce goods. From there the teachings of Carey then replace the value of working with the "theory of the cost of reproduction."
 

2. Difficulties contained in the value of that work that in addition to work much more productive services, who helped manufacture the stuff, should be avoided. Furthermore, David Ricardo (1772-1823) states that the ratio between labor and capital used in production of fixed size and it may be said very little change.

On the basis of the value of work, distinguished in addition to "natural price" (natural price) there is also a "market price" (market price). According to the classical (Adam Smith) "natural price" will occur when each citizen to obtain the freedom of choice to make something specific product which he said is more profitable and exchange it for good when judged by it. This is in line with the views of the Physiocrats. The term "natural price" (natural price) stated Smith is the same as Cantillon term "intrinsique valeur" (intrinsic value), Turgot "valeur fondamental" (base price), Say "prix reel" (real prices), Ricardo "primary / natural / Necessary price "(cost of goods) and Cairnes" normal price "(normal price). "Market price" can be different from the "natural price" where will adjust to the situation of supply and demand for the goods in question. Similarly, on the basis of certain considerations, the existence of government regulations that may impede natural adjustment of prices the market price. But anyway, the price will naturally be the reference (guidelines) for setting market prices.

Before Adam Smith wrote his book The Wealth of Nations (1776), Adam Smith has written on the economic philosophy of science, 1759, entitled "The Moral Sentiments." Like the Physiocrats, Adam Smith assumed that the interests of communities and individuals naturally have a rapprochement in which This agreement created by the "invisible hand."
While in the book The Wealth of Nations, Adam Smith wrote, among others, that "the nature and Causes of the Wealth of Nations is what is properly Called political economy" and quite explain what should be the goal of the economy.

After Adam Smith describes the division of labor, exchange of goods, and money as a tool to promote the exchange of goods, then provide an analysis of symptoms and price value. There are three components namely the price of wages, rent and profit. Work is cause and size of the price. Adam Smith distinguished between productive labor and unproductive labor. Productive work is work that produces real physical goods and non-productive work is work that does not produce tangible physical goods. Assessed the importance of saving as well as the obligations and virtues to multiply bread that becomes the subject of religion. In this connection Paul Leautaud defines the notion store "l'Economie c'est ne pas l'art de vivre."

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