The Mechanics Monument, by Douglas Tilden, 1899.
According to Adam Smith, labor is “the real measure of the exchangeable value of all commodities” (WN I.v). For Smith, this meant that the ultimate value of goods is determined by how much labor an object can command in exchange. Modern economics eschews deploying a labor theory of value in favor of relative price theory in which the value of commodities is determined by supply and demand and the concept of marginal utility. Smith was prescient of these ideas, and he establishes resources for relative price theory in his concepts of nominal, natural, and market prices. Still, he appealed to a labor theory of value as a way of comparing the productive efficiency of different political economic systems of exchange, such as mercantilism versus liberal commerce.