Labor Theory of Cost

William Stanly Jevons was an integral part of the opening of a new period in the history of economic thought that ushered in the (marginal) utility theory of value. But Jevons, in making Adam Smith's theory on the value of commodities a focal point of his own treatment of the discussion of labor, inadvertently acknowledges a Labor Theory of Cost. In his famous work The Theory of Political Economy: Chapter 4 "Theory Of Labor" the initial section, "Definition of Labor" Jevons quotes Adam Smith and then comments as Follows:

ADAM SMITH said, "The real price of everything, what everything really costs to the man who wants to acquire it, is the toil and trouble of acquiring it. ... Labour was the first price, the original purchase-money, that was paid for all things."1

If subjected to a very searching analysis, this celebrated passage might not prove to be so entirely true as it would at first sight seem to most readers to be. Yet it is substantially true, and luminously expresses the fact that labour is the beginning of the processes treated by economists, as consumption is the end and purpose. Labour is the painful exertion which we undergo to ward off pains of greater amount, or to procure pleasures which leave a balance in our favour

This "searching analysis" conducted by Jevons and many others while attempting to refute the classical "Labor Theory of Value" is really a very successful campaign to avert all eyes and minds from the reality which Smith reveals in this statement. While the natural world is the wellspring of all economic good (the source of every thing a man needs so as to thrive), this natural world exists without cost. Labor is never expended, nor is any labor needed in the creation or re-creation of natural resources; there is no cost; such resources just exist. And while man (probably due to his own folly), may cease to exist some day in the very distant future, it is certain that whatever is left will still be naturally occurring all by itself free of any cost whatsoever. This is, of course, why that adjective "natural" is prepended to that word "resources".

Any seemingly successful attack of neoclassical economists lodged against this "Labor Theory of Cost" will have been conducted through an assault on Smith's/Ricardo's/Marx' companion "Labor Theory of Value". But the exposed error is not in a wrongful interpretation and definition of cost being measured in labor and, hence making economic cost equivalent to labor. The error is in the proclamation that value is equivalent to cost. Drawing an equivalence between cost and value is erroneous. And it is the realization that natural resources are a gift of nature, a gift from the almighty, an accidental result of the big bang, or a magical happenstance that informs our senses that there is a huge difference between cost and value. Natural resources as they exist have immense value yet have no labor component, i.e. no cost.