ABSTRACT
This chapter clarifies Smith’s labour commanded standard, and why he chose to deflate prices by wages rather than wages by prices. The chapter uses principles from TMS and LJ, essentially natural law principles of justice, to help us understand why Smith chose labour in the first place, and why he thought he could argue that an hour of labour had a constant disutility. The chapter shows the use of Smith’s measure in modern research, which highlights the intuitive appeal of labour command. The chapter also uses data on working-class budgets in Smith’s day to explain his claim about the relationship between money wages and money corn prices as an accurate empirical generalization. Lastly, although not concerned with explaining the relative price structure, I have made some preliminary observations which cast considerable doubt on the view that Smith held to a labour theory of value as an explanation of the relative prices. I also pointed out that Smith’s measurement problem is not at all the same problem Ricardo and Marx faced when they did employ a labour theory explanation of relative prices.
