Lest Alan Issac's contribution left the wrong impression about Smith's 
theory of value, I'd like to point out that his quote does not negate 
Smith's use of scarcity in explaining exchange values or market prices.  
Rather than scarcity being the source of demand, Smith says in the quote 
he cites that demand for the precious metals is "greatly *enhanced* by 
their scarcity" (my emphasis).  Indeed, at the beginning of the 
paragraph from which I took my quotations, Smith writes: "Their 
[precious metals] highest price, however, seems not to be necessarily 
determined by anything but the actual *scarcity* or plenty of those 
metals themselves" (/WN/ 1: 191; my emphasis).  Read in its 
completeness, therefore, Smith's theory of value (relative prices) is 
that of a joint determination by costs (or relative scarcity) and 
utility (value in use).  And that is theory of value Alfred Marshall 
restates, contrary to Emil Kauder's (1965, 168) claim.

Alan G Isaac wrote:
> On 7/17/2012 1:49 PM, James C.W. Ahiakpor wrote:
>> "Increase the scarcity of gold to a certain degree, and
>> the smallest bit of it may become more precious than
>> a diamond, and exchange for a greater
>> quantity of other goods.  The demand for those metals
>> arises partly from their utility, and partly from their
>> beauty ... The merit of their beauty is
>> greatly enhanced by their scarcity ... these qualities of
>> utility, beauty, and scarcity, are the original
>> foundations of the high price of these
>> metals, or of the great quantity of other goods which they
>> can every-where be exchange."
>
>> Smith did use scarcity and utility (value in use) in
>> explaining relative market prices.
>
>
>
>
>
> I believe that, in this particular discussion,
> Smith is presenting scarcity as a source of *demand*:
>
>     "The merit of their beauty is greatly enhanced by their
>     scarcity. With the greater part of rich people, the
>     chief enjoyment of riches consists in the parade of
>     riches; which, in their eye, is never so complete as
>     when they appear to possess those decisive marks of
>     opulence which nobody can possess but themselves. In
>     their eyes, the merit of an object, which is in any
>     degree either useful or beautiful, is greatly enhanced
>     by its scarcity, or by the great labour which it
>     requires to collect any considerable quantity of it;
>     a labour which nobody can afford to pay but themselves.
>     Such objects they are willing to purchase at a higher
>     price than things much more beautiful and useful, but
>     more common."
>
> fwiw,
> Alan Isaac

-- 
James C.W. Ahiakpor, Ph.D.
Professor
Department of Economics
California State University, East Bay
Hayward, CA 94542

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