On the "Insurmountable Difficulties, Obscurity, and Embarrassment" of Smith's Fifth Chapter

We have been under the necessity of suspending our progress in the perusal of the Wealth of Nations, on account of the insurmountable difficulties, obscurity, and embarrassment in which the reasonings of the fifth chapter are involved. It is amusing to recollect the history of one's feelings on a matter of this kind: many years ago, when I first read the Wealth of Nations, the whole of the first book appeared to me as auspicious as it was interesting and new. Some time afterwards, while I lived in England, I attempted to make an abstract of Smith's principal reasonings; but I was impeded by the doctrine of the real measure of value, and the distinction between nominal and real price: the discovery that I did not understand Smith, speedily led me to doubt whether Smith understood himself, and I thought I saw that the price of labour was the same sort of thing as the price of any other commodity; but the discussion was too hard for me, and I fled to something more agreeable because more easy.

--Francis Horner, journal entry, 24 May 1801,
Memoirs and Correspondence of Francis Horner, M. P.

The several different minor theories of value given by Adam Smith are not woven into a whole by him. The student of his views approaches his great work with a respect that amounts to awe, and it takes time to force himself to the conclusion that there is a part of the Wealth of Nations which, though profoundly suggestive, is not entirely consistent. The attempt, instinctively made by the commentator, to find a hidden consistency behind the various incompatible utterances, to discover a hypothesis upon which the contradictions may be declared apparent only, is, according to the belief of the writer, fore-doomed to complete failure.

--Albert C. Whitaker,
History and Criticism of the Labour Theory of Value

[Smith's fifth chapter] is arguably (and despite strong competition, notably from Ricardo) the most convoluted chapter ever to emerge from the pen of a great economist.

--D. P. O'Brien, The Classical Economists

What a melancholy irony is contained in the above complaints! The author who extolled the "beauty of a systematical arrangement of different observations connected by a few common principles" (V.i.f.25) is described by successive generations as having produced at a key point of his work a "most convoluted chapter," composed only of "various incompatible utterances." ¹ To one who urged his students to recall, in their own "didactical writing," that "it gives us a pleasure to see the phaenomena which we reckoned the most unaccountable all deduced from some principle (commonly a wellknown one) and all united in one chain" (Smith 1983, ii.134), reviews such as these certainly would have been painful.

"Incompatible Utterances"?

The source of these complaints was the principle, stated in the opening paragraphs of that famous chapter, that "the value of any commodity . . . to the person who possesses it . . . is equal to the quantity of labour which it enables him to purchase or command" (I.v.1). It is evident that Smith's explication of this principle gave no "pleasure" to the young Horner or to the generations of readers who followed him, judging from the chaotic state of the commentaries produced over the ensuing two centuries. One finds in those commentaries a bewildering array of interpretive traditions, the earliest originating with David Ricardo, Horner's more famous contemporary, who charged that Smith had confused "the quantity of labour bestowed on the production of any object" with the quite distinct notion of "the quantity [of labor] which it can command in the market: as if these were two equivalent expressions" ([1817] 1951, 14). To be sure, Ricardo's criticism lost its force a generation later when John Stuart Mill reminded his readers that Smith's notion is to be...