The Role of the Labor Theory of Value (LTV) in Classical Economics

QUESTIONS: Jerry Z Muller the Mind and the Market
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1. The classical economists' flirtation with the labor theory of value (LTV) has been criticized as a dead-end street. What is the labor theory of value ? How does Ricardo use the labor theory of value to critique Smith's theory of value ? What are the chief criticisms of the LTV. The standard critique assumes that the sole point of the LTV was to explain relative prices. Would Sraffa agree ? Explain. What is the role of the LTV in classical economics, according to Sraffa ?
The labor theory supposes that it is possible to measure the value of commodities objectively by considering the labor hours required in production. The price and goods then ought to reflect the labor hours required to produce the good. In this regard the value of a commodity takes into consideration the labor used in the production which includes the labor used in the production of the raw materials and the worn out of the capital equipment used in the production process. On the other hand wages are calculated by the value of goods and services that a working class needs to survive on and reproduce. If the value of goods and services are high, then the wages will also rise to cater for the needs of the working class families while the capitalist gets low profits and rent for land will be high, and vice versa is true. Ricardo incorporates rent and profit into the value theory unlike Smith who added them as part of the costs of production.
Ricardo argued that labor was the source and measure of all value, but Smith claimed that labor is the only measure of all the value as it is inflexible compared to money that changes because of inflation. To Smith the division of labor created value resulting in increased capital, but Ricardo maintained that the value of a good depended on the labor and yet th...