Ricardo claimed that differing capital-labour ratios in the production of commodities considerably modified his prinsiple that their value is determined by `the quantity of labour bestowed in production.` Is the principle modified, or destroyed?

Question

Ricardo claimed that differing capital-labour ratios in the production of commodities considerably modified his principle that their value is determined by `the quantity of labour bestowed in production . ` Is the principle modified , or destroyed

Introduction

David Ricardo (1772 to 1823 ) was a classical economist , he formulated the labour value theory and the theory of comparative advantage , and these two theories have led to greater understanding of economics issues , however David Ricardo considered Labour as the only factor of production in his labour value theory

The labour theory

of value (LTV ) is a term given to different accounts of value by various economists with the common element that the "value of an exchangeable good or service is equal or proportional to the amount of labour required to produce it , including the labour required to produce the raw materials and machinery used in the process . The labour theory of value prevailed among classical economists through to the mid-19th century with its most developed form appearing in Marxian economics but among modern mainstream economists it is considered superseded by the theory of marginal utility

The term value takes on many meanings , and it is very important to be clear on what is actually meant when the term is being used Contemporary LTV theorists , following Karl Marx , distinguish between several key uses of the term value

For any commodity : value "in use " is the usefulness of this commodity its utility value "in exchange " is the relative proportion with which this commodity exchanges for another commodity in other words , its price in the case of money value without any qualifying adjective refers to the amount of labour embodied in commodity

David Ricardo formulated the theory of comparative advantage in which he considered labour as the only factor of production , the amount of labour used in the production process determines the value of the product , he considered wine and cloth which were products produced by both England and Portugal , however Portugal had comparative advantage in both the production of wine and cloth over England . However his theory of comparative advantage proves that both countries will still gain by trading

The ratios of capital and labour used in the production process does not destroy Ricardo 's principle that labour determines the value of final goods , it only modifies this principle because the capital labour ratio used in the production process means the method of production whether a capital intensive method of production or a labour intensive method of production , the method used in production depends on the availability and cost of the factors and also the type of goods to be produced

Capital and labour determination of final value

The concept that differing capital and labour ratios simply modifies his theory that the value of goods is determined by the amount of labour involved in the production of that good , one reason why this concept only modifies his theory is because the theory of comparative advantage is based on the assumption that there exist only...