Unproductive labour in economic theory

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Unproductive labour is labour which does not further the end of the system. Therefore this concept has sense only with reference to a determined system. In classical economics the end is growth and development, in Marxian economics (WP) the end is capitalistic profit and in business the end is to place and sell a certain commodity or service. In each case the term unproductive labour has a different meaning.

Unproductive labour in economic theory

In economic theory the concept of unproductive labour had a similar fate as phlogiston had in physics. In classical physics, for Newton and afterwards, phlogiston was the essential concept to explain Wikipedia:combustion until Wikipedia:oxygen was fully understood as an element. Modern physics is ashamed of phlogiston. Similarly in Wikipedia:classical economics – which called itself Wikipedia:Political Economy – unproductive labour was a central concept while today a person defending this concept shows his economic incompetence. In physics, phlogiston disappeared because science progressed from classical to modern physics. In economics, unproductive labour disappeared because with the change from Political Economy to neoclassical Economics the definition of economics as a science changed. Within the development programme of classical economics unproductive labour is still an indispensable concept.

The change from Political Economy to neoclassical Economics was induced by the highly successful development program Political Economy initiated in England and some other countries. One century of development changed completely the economic and social conditions of these countries and made the old concepts difficult to employ; in the old days the landed gentry was regarded as an obstacle for future economic development, while 100 years later business feared organized labour would stop progress.

Unproductive labour gained new theoretical importance with the capital controversy (1954 - 1966), where with a classical focus the internal logic of the neoclassical concept of capital as a malleable substance was successfully put in doubt. This gave importance to the classical concept that capital is dated labour as any input can be reduced to direct labour and other inputs which again can be reduced into labour and other inputs. Competitive prices indicate therefore the relative difficulties of production shown by the labour units necessary for production and corrected by interest for dated labour. Sraffa’s (1960) presentation of this Ricardian price determination had to distinguish between basic and non-basic commodities – the classical distinction between productive and non-productive labour – because their prices react differently to technological progress.

Unproductive labour and classical economics

Classical economics developed while European nations were competing for power. Classical Political Economy tried to promote economic growth and development, which allowed taxation and therefore military spending to increase. Most classical economists discuss taxation. Wikipedia:Mercantilism tried to further the same end by national protection, but classical economists showed that open and competitive markets, nationally and internationally, are more efficient. All this is formulated in macro-economic terms without need to fall back on micro-economic psychology.

Classical economics is about reproduction and increased reproduction. If the volume of inputs in an economy in period2 is bigger than the volume of inputs in this economy in period1, there is development. This is the case if an increased part of the output of period1 becomes input of period2 and not final consumption, i.e. unproductive labour. An increased input in the economic circle in period2 as a result of a diminished part of unproductive labour in the output of period1 means that stocks and human capital are increased to enhance the productivity of physical labour. In other words, that part of the output of period1 which becomes final consumption and not input of period2 is lost for development and is therefore unproductive.

This does not mean on a micro-level, that the workers are unproductive. Producing caviar is very productive on a micro-level as consumers receive a high utility by distinguishing themselves from those folks who cannot afford caviar. But caviar is no economic input into the following economic circle. For classical economics it is unproductive, for neoclassical economics it is productive.

Why the Économistes (vulgar Physiocrates) forged the concept of unproductive labour

Elements of the classical analysis of economic reproduction can be found in Petty (1662), Cantillon (1732) and earlier. But it was Quesnay and his followers – the Économistes – who formalized this concept in a Wikipedia:Tableau économique (1759). As France was on the brink of bankruptcy – lost wars, help to the American insurgents against the British, and excessive unproductive labour – Quesnay, personal physician to Wikipedia:Louis XV and already 63, proposed and substantiated economic measures to salvage feudal France. His ideas relied on an analogy to the blood circle, a subject on which Quesnay had published and which gave him his position at the court. Quesnay’s analysis is the foundation of Wikipedia:classical economics and Adam Smith thought of dedicating to Quesnay his Wealth of Nations, had he not died earlier.

As Quesnay’s intention was to salvage feudal France and not to criticize it, he did not denunciate the nobility (and the church) for excessive consumption of unproductive labour. Politically correct he decried as "classe stéril" those who responded to the demand of the nobility with commodities and services – the artisans and manufacturers. Louis XIV had ruined France – population shrunk by 4 millions and agriculture by one-third – and the nobility and the church were the only clients artisans had. It was therefore correct to call them in France "classe stéril" because their work became no part of the inputs to the next economic circle as the nobility and the church do not contribute to economic reproduction. Under this condition, only agriculture contributes to the next economic circle and therefore only agriculture was declared productive. Its produce maintains not only agriculture itself but also the artisans and manufacturers and even the economically disposable noblesse. (For a very different and typical neoclassic view why physiocrates deemed only agriculture productive, see Samuelson’s Quesnay’s Tableau Economique as a theorist would Formulate it or the actual Wikipedia article on Wikipedia:Physiocracy).

Quesnay’s analysis was highly political. The "Theorie de l’impôts" (1760) written by Quesnay and the elder Mirabeau named only the latter as author because Quesnay feared for his position at the court. This fear was justified as the book was confiscated and Mirabeau sentenced to some days prison and, what is worse for a French noble, to house detention – where house means his château – and separation from the Parisian society. This may illuminate why Quesnay did not explain that artisans and manufacturers are "stérile" only under the specific feudal conditions of France. His claim is general, praising nature and a natural stile of life, whence the denomination of "Physiocrates". But as the mechanisms of reducing Wikipedia:cognitive dissonance are usually very efficient the dissonance between believing that this is a French problem and declaring a universal relation was finally reduced by believing the declaration. Most scientists resolve it that way.

Quesnay as a unique example of political correctness not only evaded to criticize the consumption pattern of the nobility. He underlined the importance of this class by declaring land, their property, as the only "factor of production". [This term is neoclassical and incompatible with classical theory which reduces commodities not into inputs of "factors of production", but into direct and dated labour. But that’s the way neoclassical economists understand Quesnay.]

Because of this smoke screen – necessary to survive in feudal France – Adam Smith reproached the Économistes for considering artisans "unproductive", because he also didn’t understand that this judgement is valid only in countries with French conditions. But it would mean imprisonment to explain openly that agriculture must be promoted so that artisans and manufacturers start producing equipment and services for this sector and not for the aristocracy. And as agriculture is considered "productive", artisans and manufacturers become "productive" in so far they work for agriculture. This change in demand implies a change of distribution – a politically dangerous subject – so that agriculture starts competing with the demand of the nobility. It is because of this relation between distribution and productivity that Ricardo declared in the Preface of his "Principles of Political Economy" (1817) that "to determine the laws which regulate … distribution, is the principal problem in Political Economy".

With the fall of Turgot who introduced free trade of corn within France – those who feared that free trade will dry up their income as tax collectors (up to two-third of the tax) succeeded in convincing the populace that this would give way to speculation – the influence of the Économistes on French politics ended. More borrowing and a continued promotion to produce luxuries ("unproductive labour") let finally to the Wikipedia:French Revolution.

Adam Smith – before his voyage to France (1764–1766) – mentions in his "Theory of Moral Sentiments" (1759) an "invisible hand" which procures that the gluttony of the rich helps the poor as the stomach of rich is so limited that they have to spend their fortune on servants. After his visit to France, Smith considers in the "Wealth of Nations" (1776) the gluttony of the rich as "unproductive labour".

Unproductive labour in Adam Smith’s roadmap for growth

Adam Smith starts the "Wealth of Nations" with his roadmap for growth:

The annual labour of every nation is the fund which originally supplies it with all the necessaries and conveniences of life which it annually consumes … . [T]his produce … bears a greater or smaller proportion to the number of those who are to consume it … .[B]ut this proportion must in every nation be regulated by two different circumstances;

• first, by the skill, dexterity, and judgment with which its labour is generally applied; and,
• secondly, by the proportion between the number of those who are employed in useful labour, and that of those who are not so employed [emphasis added].

The objective of Political Economy is "Wealth": abundance at low prices. For Smith: "[t]he wealth of a state consists in the cheapness of provisions and all other necessaries and conveniences of life." And this "cheapness" or "riches" of commodities can be obtained by two measures:

• deepening the division of labour to enhance the productivity of the labourers, i.e. adding physical or human capital including inventions, or
• diminishing the proportion of labour employed for unproductive consumption to enhance the stock of capital making labour more productive and to employ more labour productively.

Ricardo’s recipe to increase "wealth" is identical:

[T]he wealth of a country may be increased in two ways:

• it may be increased by employing a greater portion of revenue in the maintenance of productive labour,—which will not only add to the quantity, but to the value [measured in units of labour] of the mass of commodities;
• or it may be increased, without employing any additional quantity of labour, by making the same quantity [of productive labour] more productive,—which will add to the abundance, but not to the value [measured in units of labour] of commodities.

In the first case, a country would not only become [physically] rich but the [direct and interest paid dated labour] value of its riches would increase. It would become rich by parsimony; by diminishing its expenditure on objects of luxury and enjoyment; and employing those savings in reproduction. In the second case, there will not necessarily be either any diminished expenditure on luxuries and enjoyments, or any increased quantity of productive labour employed, but with the same labour more would be produced.

The two measures in Smith’s and Ricardo’s roadmap for growth are not independent. Deepening the division of labour means mass production to use better technology to cheapen prices. There will be little gains due to a division of labour in a society with polarised income distribution – probably most of it spend on "unproductive labour" – because of small-scale production. Adam Smith’s example of a pin factory – where the division of labour into 18 steps increases productivity 240 times – is taken from the Encyclopédie (1755). But the Économistes in pre-revolutionary France did not even consider the productivity of a division of labour because given their distribution of income cheapening the production of a commodity by inventions affects only this commodity which is no input to the next economic circle and does therefore not affect the general price level.

The dynamics of the classical growth program – deepening of the division of labour lowers prices which in turn increases turnover which again deepens the division of labour – implies that there is enough capital to allow for a deeper division of labour. This would be jeopardised by a high quota of unproductive labour.

J. St. Mill and "unproductive labour"

Ricardo’s world was clearly laid out: Workers earned subsistence wage or a bit more, capitalists had to re-invest profits because of severe competition and only landowners not subjected to competition could spend their rents on unproductive labour. Because classical growth strategy was so successful, this setting had change in times of Mill. 1844 in "Essays on unsettled questions" Mill defended – certainly because the concepts were already doubted – the distinction of productive and unproductive labour. In his "Principles" (1848) Mill formulated the classic version of the Wikipedia:Wage-Fund Doctrine that wages could rise only if capital is abundant. But in 1869 Mill recanted the Wage-Fund Doctrine stating that wages could be anywhere between the ruin of the workers of the ruin of the capitalist. But if competition is unable to reduce wages to subsistence level – because Britain and some other countries became the workshop of the world – not only landlords, but also the workforce and capitalists – enjoying partial monopolies – are enabled to consume unproductive labour. This complicates the classical logic and was one element to abandon it.

Even before recanting the wage-fund doctrine Mill stated in the "Principles":

In truth, it is only after an abundant capital had already been accumulated, that the practice of paying in advance any remuneration of labour beyond a bare subsistence, could possibly have arisen: since whatever is so paid, is not really applied to production, but to the unproductive consumption of productive labourers, indicating a fund for production sufficiently ample to admit of habitually diverting a part of it to a mere convenience.

Sraffa’s revival of "unproductive labour"

In "Production of Commodities by Means of Commodities" (1960) Sraffa shows that competitive markets prices of reproducible commodities are determined by technological coefficients. Leontief (1928) had shown the same in his unnoticed German dissertation. This runs contrary to the neoclassical view that demand plays part in the determination of long run prices.

If prices are determined by technological coefficients, inventions change theses coefficients and corresponding prices. In the case of "non-basic commodities" – Sraffa’s term for classical "unproductive labour" – an invention changes only the price of the commodity directly concerned. An invention cheapening the production of a "basic commodity" – Sraffa’s term for classical "productive labour" – reduces the price level of the whole economy as the cheapened commodity is an input to the next productive circle.

"Unproductive Labour" in Keynes’ "General Theory"

Not in the formalized Keynesianism of text-books but in Keynes’ "Wikipedia:General Theory of Employment, Interest and Money" (1936) the distinction of productive and unproductive labour is important. In a depression, productive capital und labour lies idle so it makes no sense to augment its quantity by e. g. constructing a road to cheapen transport. Unproductive labour has to be promoted: In so far as millionaires find their satisfaction in building mighty mansions to contain their bodies when alive and pyramids to shelter them after death, or, repenting of their sins, erect cathedrals and endow monasteries or foreign missions, the day when abundance of capital will interfere with abundance of output may be postponed. To dig holes in the ground, paid for out of savings, will increase, not only employment, but the real national dividend of useful goods and services.

Keynes accepted Malthus’ point of view that the consumption of "unproductive labour" by the landed gentry is essential to get over a depression. To overcome a depression "unproductive labour" is beneficial, to further growth it’s an obstacle.

Samuelson’s understanding of "unproductive labour"

Kuhn (1962) explained why a dialogue between scholars of different theoretical paradigmata is as difficult as a dialogue between a Hindu and a Bantu. The meaning of the concepts used in discussion is defined differently by each theory so that agreements between scholars of different theories are likely to be based on a misunderstanding. As Samuelson tries to “study the past from the standpoint of the present state of economic science”, it is to be expected that his view on other theories is plagued by misconceptions. Samuelson’s statement about Sraffa’s defence of "unproductive labour" is an example:

Sraffa ... was 50 when I first knew him; and the puzzlement this sophisticated intellectual engendered in me by orally defending such a notion as Smith’s concept of "productive labour" (whereby concrete "goods" are given a primacy over ephemeral "services") suddenly evaporated when I came to hypothesize that this sophisticated mind had a penchant for Marxian notions. This paradigmatic insight for understanding Sraffa served the observer well.

As A. Smith and Marx both use the term "unproductive labour", to Samuelson they must mean the same. But the world and the theory of A. Smith and Ricardo are very different from the world Marx and neoclassical economists observed and coined their theories. "Wikipedia:Das Kapital" (1867) was published a few years before its neoclassical response. Marx thought labour to be a "factor of production", the only factor, and neoclassical economists claimed there are some more. By "productive labour" Marx means labour that produces surplus value; that part of the surplus which is not accumulated and spent on "unproductive labour". Adam Smith and Marx do agree that house maids and house tailors are unproductive, but a clown paid by an entrepreneur to produce profit is productive for Marx as he produces profit. But he is unproductive for classical economists as he is no input for the next economic circle.

Sraffa’s defence of Smith’s "unproductive labour" was the defence of his own concept of a "non-basic commodity" and had little to do with Marxian "unproductive labour" as anticommunists would like it. For Adam Smith and for Sraffa: "The criterion is whether a commodity enters (no matter whether directly or indirectly) into the production of „all“ commodities. Those that do we shall call „basic“, and those that do no, „non-basic“ products."

"Unproductive labour" as value judgement

For neoclassical theory, to call one type of commodities and services productive and the other unproductive is an unscientific value judgement: interpersonal comparisons of utility are impossible.

Unproductive labour and neoclassical theory

For neoclassical theory the end is maximizing utility. Utility is a micro-economic concept and neoclassical economics is micro-economics. On this level unproductive labour cannot exist if the individual is regarded as a Wikipedia:homo oeconomicus. If by definition everybody acts rationally to create utility, this logical construction excludes the existence of unproductive labour. For Neoclassical economists unproductive labour is a concept incapable to be discussed rationally. Schumpeter declares unproductive labour a dusty museum piece.