ABSTRACT
Book I, Chapter 6 of The Wealth of Nations opens with the famous example of beaver and deer hunters engaging in trade in the early state, the state before rent and profit existed as categories of income. Traditionally, Smith is seen as stating a labour theory of value, i.e., the theory that the competitive market relative price structure is determined by the relative labour embodied in the commodities that are exchanged. I propose to challenge this interpretation. I argue that the textbook interpretation of the beaver and deer exchange ratio, while analytically correct in modern economics (Marxian, Neo-Ricardian and Neoclassical), is not at all what Smith is doing in this vignette. Instead, I interpret it as a situation where personal relationships interact to generate rules of exchange, not market prices. These rules can be interpreted as rules of gratitude following a suggestion Smith makes in the Lectures on Jurisprudence, that exchange starts with gift-giving, or rules of justice once property rights are defined and valuable enough to enforce. The causal analysis of market price and its adjustment to conform to natural price comes later in Smith’s value theory chapters.
