This term is the basis for economic thought and reason. A "value" theory is necessary to any and all economic analysis and discussion. Without agreement on the basic unit of value then no further communication or argument is likely to lead to any rational conclusion. And while it is understood that we value our mothers, this has little to do with how we conduct our economic lives or how we would want to deal with economics and/or politics.

"Every man is rich or poor according to the degree in which he can afford to enjoy the necessaries, conveniences, and amusements of human life. But after the division of labour has thoroughly taken place, it is but a very small part of these with which a man's own labour can supply him. The far greater part of them he must derive from the labour of other people, and he must be rich or poor according to the quantity of that labour which he can command or which he can afford to purchase. The value of any commodity, therefore, to the person who possesses it, and who means not to use or consume it himself, but to exchange it for other commodities, is equal to the quantity of labour which it enables him to purchase or command. Labour, therefore, is the real measure of the exchange value of all commodities.

The real price of every thing, what every thing really costs to the man who wants to acquire it, is the toil and trouble of acquiring it. What every thing is really worth to the man who has acquired it, and who wants to dispose of it or exchange it for something else, is the toil and trouble which it can save to himself, and which it can impose on other people. What is bought with money or goods is purchased with labour, as what we acquire by the toils of our own body. The money and goods indeed save us the toil. They contain the value of a certain quantity of labour which we will exchange for what is supposed at the same time to contain the value of an equal quantity. Labour is the first price, the original purchase-money that was paid for all things. It was not by gold or silver, but by labour, that all wealth of the world was originally purchased; and its value, to those who possess it, and who want to exchange it for some new productions, is precisely equal to the quantity of labor which it can enable them to purchase or command."

Marx seems to have interpreted Smith in such a way as to insist that an item is worth whatever labor was spent on its creation. This may be Marx's theory but it certainly does not derive from what Smith has said. One wonders how long it will take to stomp out this indictment and besmirching of Smith by latter day "schools" of economics. The trick they will employ is in promoting the association of Smith with Marx. It may be that Marx claimed to be expanding on Smith or he may have lied outright and claimed to be expounding on Smith. But we can't find a buggy whip or a white elephant (things for which there is no market) anywhere in what Smith has to say.

The proper interpretation of What Smith has presented is that we each value goods or services based on the labor we are willing to trade for those goods or services we will be receiving. We will pay a mechanic to repair the brakes on our car with money we have accumulated from our own labors because we realize that we can replace that money for less labor than we would expend doing the job ourselves. His labors are valuable to us in exactly the amount of our labor we are willing to pay. And no, we did not mess that up. Absent coercion, what most of us would be giving the mechanic is our past accumulated labor, or, if we pay with plastic we are giving our future labor, i.e. " It was not by gold or silver, but by labour, that all wealth of the world was originally purchased". Those dollars (assuming an honest system without coercion or guile or monetary manipulation) are the accounting of our past labor or future labor, and they are also a measure of all of the various non-coercive choices we have in commanding (purchasing) the labor of others. All exchange value that is of any interest or import in economics is based on labor in exactly the way that Smith has claimed.

For the sake of the Austrian "school" it is necessary to explore the fact that we trade our ability to command labor in others when we trade to acquire something we desire, and that this command of labor which we possess in the form of gold or silver or money was not necessarily the result of any labor or contribution on our part to the society as a whole. We may well have taken these credits by force, or stolen these credits, or won them in a lottery, and as such these credits may not reflect our past contribution to the market from which we will be extracting value and wealth. Nonetheless, however, these claims on the market are claims on the labor of others and our decisions to use them or not will be based on our appreciation of the command of labor that we will be giving up by virtue of their expenditure.

Smith's closing sentence gives us an opportunity to correct some of the duplicity that is so much a part of the real bedrock latter day economic tap dancing. The obfuscation arises due to an inadequate definition of the word "wealth" that allows deceit as well as honest confusion. Economists of different schools define "wealth" differently or purposely use it in a misleading way. The term is very well defined in lay conversation and economics would do well to simply adopt that standard definition. We make our point by using Smiths closing sentence: "It was not by gold or silver, but by labour, that all wealth (goods) of the world was (were) originally purchased". In economics the word "goods" should be employed in most places where honest economists currently use the word "wealth" because wealth has two dimensions. Economists speak of wealth as those things created by labor and then some economists include naturally occurring land, and they include oil, and they include military strength and just about everything imaginable. Most certainly the lay person in using the term sees it as that which can command the labor of others and thus the control of oil and diamonds and gold in the earth would be interpreted by the lay person as "wealth". We see that wealth has two dimensions being "goods" and "puissance". But in the final analysis the measure of puissance (its value) is still the labor it can command