ABSTRACT
Adam Smith opens the chapter with a statement of the labour theory of value as a principle that regulates exchange ratios between commodities in a society of labourers only. Another of Smith's contemporaries, Governor Pownall, in his open letter dated 25 September 1776, wrote long and varied criticisms of the Wealth of Nations. Thus the total produce or the real value of the total produce usually gets divided into three components: one goes to the landlords as rent, another goes to the capitalists as profit, and the third goes to the labourers as wages. Smith defines natural price as the lowest price that could prevail in the long-term and that this price prevails when the quantity supplied is equal to its effectual demand. David Ricardo, who can be credited for establishing the theoretical foundations of classical political economy, criticises Adam Smith for abandoning the true theory of value to 'that early and rude state of society'.
