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The Development of Economic Theory

Nothing is more useful than water: but it will purchase scarce anything; scarce anything can be had in exchange for it. A diamond, on the contrary, has scarce any value in use; but a very great quantity of other goods may frequently be had in exchange for it (Smith, 1978, pp. 131-132).

Smith, in The Wealth of Nations, was concerned with value in the exchange context (Smith, 1978, p. 131). He postulated that value, in an exchange context, derived from considerations of both the division of labor, and the use of money (Ekelund & Hebert, 1983, p. 90). On the one hand, he held that the division of labor "arises from a propensity in human nature to exchange, for which each trader must have a surplus over his immediate needs with which to trade" (Ekelund & Hebert, 1983, p. 90). On the other hand, he held that money "enters the picture because it makes trade more convenient insofar as it is generally acceptable and portable" (Ekelund & Hebert, 1983, p. 90). From this basis, he concluded that value is determined by rules observed in the exchange of goods for money.


Smith considered many factors in the determination of value, and the development of wealth  labor, wages, and prices, to name but three. His considerations of these factors and others are presented in the discuss


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