An introduction to the theory of value — Inside the Classic

The Marginal Buyer and the Law of Price

In the excerpt discussing price determination, Smart arrives at a concise formulation: 'Price is determined by the valuation of the Marginal Buyer.' He anticipates objections that the preceding discussion—involving 'peasants selling horses, or buyers and sellers wishing to trade for just one barrel of apples each'—is irrelevant to modern commerce. Smart counters that one must 'go back to the simplest cases of exchange—perhaps even barter; find what principles are involved in all exchange; and then work out the complications and simplifications which come with developed trade.' The method is explicitly pedagogical: 'It is impossible to explain the “short cuts” till we know the roundabout road.'

Resemblance to Supply and Demand

Smart acknowledges that his law of value bears 'many resemblances' to the law of Supply and Demand, noting that 'all theories lead very much to one practical code of morals.' He identifies four individual determinants of price: extent of demand, intensity of demand, extent of supply, and intensity of supply. His critique of the traditional law is that 'it devotes ample space to the phenomena of supply, but it leaves demand almost entirely without analysis.' Smart claims his theory is not a rival but offers 'breadth of basis or accuracy of details,' making price 'a resultant of Supply and Demand' while carefully analyzing the demand side.

Pedagogical Strategy and Audience

Smart's preface indicates the book is aimed at 'the young economist' during 'many years of his apprenticeship.' The text repeatedly defends its step-by-step approach: 'The only way to understand the completed theory of value is to go back to the simplest cases.' The author compares beginning with complex market phenomena to 'taking our stand on an omnibus in Cheapside, and watching the surging life below'—a vivid image that underscores his commitment to foundational principles. The work is explicitly an introduction, not a comprehensive treatise, and Smart directs readers to Marshall for fuller treatment.

Smart's text is best read as a deliberately limited introduction, one that insists on building from elementary exchange to market complexity. Readers should note the author's own framing: the book is a supplement, not a standalone system. The 1910 preface and the appendix on 'The Demand Side' (mentioned but not excerpted) suggest Smart's later thinking evolved. For a full picture, the student is directed to Marshall's Principles and to the Austrian works Smart translated.