Supply, Cost and Disutility

What we have said does not exclude the dependence of value on supply and demand. In short the utility of what is last received depends on the quantity supplied. Thus the theory I gave last time is in accordance with supply and demand. There arises the question how value depends on the cost of the productn. of articles or what is the relation between value and labour? There has been much discussion on this subject from Smith down to the present time. Smith thought labour was the best measure of value, because “labour is the natural price which we give for everything: all products are the products of labour and may be considered as exchanged for labour”;1 therefore he thought that the quantities of labour embodied in goods represented their value more nearly than anything else. That, however, entirely breaks down when we come to apply it, for several reasons, — at any rate two reasons. 1st. That labour is exerted in circumstances more or less advantageous; second that a man cultivating first class land produces two or three times as much corn as one cultivating sterile land at the top of the hill. There we get into a difficulty. The labour cannot possibly be the value there, because the corn that is produced is all of equal value.