A Statistical Equilibrium Approach to Adam Smith's Labor Theory of Value

TL;DR

This paper applies statistical equilibrium methods from physics to model Adam Smith's labor theory of value, explaining the stability and fluctuations in the division of labor and market prices.

Contribution

It introduces a novel statistical equilibrium model of producer distribution that captures the dynamics of Smith's division of labor and market price stability.

Findings

Predicts the distribution of producers across industries.

Explains fluctuations in production lines due to 'perfect liberty'.

Shows market prices gravitate around natural prices.

Abstract

Adam Smith's inquiry into the emergence and stability of the self-organization of the division of labor in commodity production and exchange is considered using statistical equilibrium methods from statistical physics. We develop a statistical equilibrium model of the distribution of independent direct producers in a hub-and-spoke framework that predicts both the center of gravity of producers across lines of production as well as the endogenous fluctuations between lines of production that arise from Smith's concept of "perfect liberty". The ergodic distribution of producers implies a long-run balancing of "advantages to disadvantages" across lines of employment and gravitation of market prices around Smith's natural prices.