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Productive and unproductive labour were concepts used in classical political economy mainly in the 18th and 19th century, which survive today to some extent in modern management discussions, economic sociology and Marxist or Marxian economic analysis. Political economy originally was the term for studying production buying and selling and their relations with law custom and government Management (covering theory practice and scope of management and Manager' (covering the people who manage might help clarify and systematise Marxism is the political philosophy and practice derived from the work of Karl Marx and Friedrich Engels. Note Marxian economics is not restricted to Marxist economics as it includes the economic thought of those inspired by Marx's works who do not identify with The concepts strongly influenced the construction of national accounts in the USSR and other Soviet-type societies. National accounts or national account systems (NAS provide a complete and consistent conceptual framework for measuring the economic activity of a nation (or other geographic The Union of Soviet Socialist Republics (USSR was a constitutionally Socialist state that existed in Eurasia from 1922 to 1991

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Classical political economy

The classical political economists, such as Adam Smith and David Ricardo raised the economic question of which kinds of labour contributed to increasing society's wealth, as against activities which do not produce a vendible commodity which can be resold at a profit. Adam Smith ( baptised 16 June 1723 – 17 July 1790) was a Scottish moral philosopher and a pioneer of Political economy. David Ricardo (18 April 1772 &ndash 11 September 1823 was an English political economist, often credited with systematizing economics and was one of the most influential A society is a Population of Humans characterized by patterns of relationships between individuals that share a distinctive Culture and Institutions Wealth derives from the old English word "weal" which means "well-being They regarded human labour as the mainspring of wealth, and therefore they regarded the economical use of labour as highly important.

Within an enterprise, for example, there were many tasks which had to be performed, such as cleaning, record and bookkeeping or repairs, which did not directly contribute to producing and increasing wealth. Cleanliness is the absence of dirt including Dust, Stains bad smells and Garbage. Bookkeeping (also book-keeping or book keeping) is the recording of all Financial transactions undertaken by an individual or Organization (including

There were also whole occupations such as domestic servants, soldiers, schoolteachers etc. which, although necessary, did not seem "productive" in the sense of increasing the material wealth of a society. Part of the population consumed wealth but did not create it. To maximize economic growth, therefore, "unproductive costs" which consumed part of the total national income rather than adding to it should be minimized; productive labour had to be maximized. Economic growth is the increase in the amount of the goods and services produced by an economy over time

The question was also looked at in terms of "earned" versus "unearned" income. In a market-based economy based on trade and exchange, people can obtain incomes from all manner of activities. Some of these incomes could be seen as making net additions to the national income, while others represented only a transfer of income. Some activities created new wealth, others only transferred wealth created somewhere else or appropriated wealth.

Many different economic and moral arguments were made to either justify or else criticise the incomes gained from different activities, on the ground that they were "productive" or "unproductive", "earned" or "unearned", "wealth-creating" or "wealth-consuming".

A quote from Adam Smith

In Book 2, Chapter 3 of The Wealth of Nations, Adam Smith wrote:

"There is one sort of labour which adds to the value of the subject upon which it is bestowed; there is another which has no such effect. Adam Smith ( baptised 16 June 1723 – 17 July 1790) was a Scottish moral philosopher and a pioneer of Political economy. The former, as it produces a value, may be called productive; the latter, unproductive labour. Thus the labour of a manufacturer adds, generally, to the value of the materials which he works upon, that of his own maintenance, and of his master's profit. The labour of a menial servant, on the contrary, adds to the value of nothing. Though the manufacturer has his wages advanced to him by his master, he, in reality, costs him no expense, the value of those wages being generally restored, together with a profit, in the improved value of the subject upon which his labour is bestowed. But the maintenance of a menial servant never is restored. A man grows rich by employing a multitude of manufacturers; he grows poor by maintaining a multitude of menial servants. The labour of the latter, however, has its value, and deserves its reward as well" (Andrew Skinner edition 1974, p. 429-430).

Neoclassical economics

In neoclassical economics, the distinction between productive and unproductive labour was however rejected as being largely arbitrary and irrelevant. Neoclassical economics is a term variously used for approaches to Economics focusing on the determination of prices outputs and income distributions in markets All the factors of production (land, labour and capital) create wealth and add value; they are all "productive". In economic theory factors of production (or productive inputs) are the resources employed to produce goods and services

If the value of a good is just what somebody is prepared to pay for it (or its marginal utility), then regarding some activities as value-creating and others not is a purely subjective matter; any activity which produces anything, or generates an income, could be considered production and productive, and the only question that remains is how productive it is. In Economics, the marginal utility of a good or of a service is the Utility of the specific use to which an agent would put a given increase The subjective theory of value (or theory of subjective value) is an economic theory of value that holds that "to possess value an object must be both useful

This could be measured by striking a ratio between the monetary value of output produced, and the number of hours worked to produce it (or the number of workers who produce it). This is called a "output/labour ratio". The ratio "GDP per capita" is also used by some as an indicator of how productive a population is.

However, in calculating any output value, some concept of value is nevertheless required, because we cannot relate, group and aggregate prices (real or notional) at all without using a valuation principle. All accounting assumes a value theory, in this sense.

A persisting management preoccupation, particularly in large corporations, also concerns the question of which activities of a business are value adding. Management (covering theory practice and scope of management and Manager' (covering the people who manage might help clarify and systematise Value added refers to the additional value of a commodity over the cost of commodities used to produce it from the previous stage of production The reason is simply that value-adding activities boost gross income and profit margins (note that the "value-added" concept is a measure of the net output, or gross income, after deduction of materials costs from the total sales volume).

If the aim is to realise maximum shareholder value, two important valuation problems occur. Firstly, productive assets being used in production have no actual market price, being withdrawn from the market and not offered for sale. They have at best an historic cost, but this cost does not apply to inventories of new output produced. The current value of productive assets can therefore be estimated only according to a probable price that they would have, if they were sold, or if they were replaced. Secondly, there is the problem of what exactly the increases or decreases in the value of productive assets being held can be attributed to. In what has become popularly known as "value-based management", these problems are pragmatically tackled with the accounting concepts of market-value added (MVA) and economic value-added (EVA). This style of management focuses very closely on how assets and activities contribute to maximum profit income.

National accounts

In national accounts and social accounting theory the concepts of productive and unproductive labour do survive to some extent. National accounts or national account systems (NAS provide a complete and consistent conceptual framework for measuring the economic activity of a nation (or other geographic

The first reason is that if we want to estimate and account for the value of the net new output created by a country in a year, we must be able to distinguish between sources of new value added and conserved or transferred value. Value added refers to the additional value of a commodity over the cost of commodities used to produce it from the previous stage of production In other words, we need a value-theoretic principle which guides us in relating, grouping and computing price-aggregates.

It is obvious that if products or incomes are merely exchanged or transferred between A and B, then the total product value, or total income, does not increase; all that has happened here is, that they have been shifted around, and redistributed. Total wealth has not increased, no new value was added. By implication, some activities add new value, others do not.

Secondly, it is necessary to create an operational statistical coverage of production itself, which can be used to allocate incomes, activities and transactions in the economy as either belonging to "production", or falling outside "production". Thus, some work produces something in the economic sense, other work does not.

In general, national accounts adopt a very wide definition of production; it is defined as any activity of resident "institutional units" (enterprises, public services, households) combining the factors of production (land, labour and capital) to transform inputs into outputs. In economic theory factors of production (or productive inputs) are the resources employed to produce goods and services This includes both market production as well as non-market production, if it recognisably generates an income. The advantage of the wide definition is, that practically all flows of production-related income can be captured (but at the same time a large amount of unpaid work -housework and voluntary work - is not accounted for).

Nevertheless, some incomes are ruled out of production and regarded as transfers of wealth. A transfer is defined basically as a payment made or income received without providing any good, service or asset in return, for example: government benefits. Some forms of interest on loans, some property rents, and most capital gains on financial assets and property are also excluded, they are effectively transfers (flows of income and expenditure are regarded as unrelated to production and to the value of new output) or intermediate expenditure. Interest is a fee paid on borrowed capital Assets lent include Money, Shares, Consumer goods through Hire purchase, major assets Intermediate consumption is an economic concept used in National accounts, such as the United Nations System of National Accounts (UNSNA and the US National

Thirdly, national accounts will show the contribution of different economic sectors to the total national product or national income. These sectors are mainly output-defined (e. g. agriculture, manufacturing, business services, government administration). It is therefore possible to distinguish to some extent between "productive" activities producing some tangible product or service, and other commercial or government activities which do not (yet generate incomes).

A large amount of work done in society is not captured in national accounts, because it is unpaid voluntary labour or unpaid household labour. The monetary value of this work can be estimated only from time use surveys. A Time Use Survey is a statistical survey which aims to report data on how on average people spend their time Thus, national accounting definitions of "production" are strongly biased towards activities which yield a money-income.

Marx's critique

Karl Marx regarded land and labour as the source of all wealth, and distinguished between material wealth and human wealth. Human wealth was a wealth in social relations, and the expansion of market trade created ever more of those. Social relation can refer to a multitude of Social interactions regulated by Social norms between two or more people with each having a Social position However, wealth and economic value were not the same thing in his view; value was a purely social category, a social attribution. Definition In the absence of agreement about its meaning the term "social" is used in many different senses referring among other things to attitudes

Both in Das Kapital and in Theories of Surplus-Value, Marx devoted a considerable amount of attention to the concept of "productive and unproductive labour". He sought to establish what economic and commercial ideas about productive labour would mean for the lives of the working class, and he wanted to criticise apologetic ideas about the "productive" nature of particular activities. Working class is a term used in academic Sociology and in ordinary conversation to describe depending on context and speaker those employed in specific fields or types This was part of an argument about the source of surplus value in unpaid surplus labour. Surplus value is a concept created by Karl Marx in his critique of Political economy, where its ultimate source is unpaid Surplus labor Surplus labour is a concept used by Karl Marx in his critique of Political economy. His view can be summarised in the following 10 points.

Marx accordingly made, explicitly or implicitly 10 distinctions relevant to defining productive labour in a capitalist mode of production:

In most cases, using these distinctions, it would be obvious whether the labour was capitalistically productive or not, but in a minority of cases it would be not altogether clear or controversial. In Marxian economic discourse the capitalist mode of production refers to the socio-economic base of capitalist society which began to grow rapidly in Western Europe from the A commodity is anything for which there is demand but which is supplied without qualitative differentiation across a market Materials are physical Substances used as inputs to production or Manufacturing. In Marx's critique of Political economy, any labor-product has a value and a use value, and if it is traded as a Commodity in markets it In Political economy and especially Marxian economics, exchange value refers to one of four major attributes of a commodity, i Income, refers to consumption opportunity gained by an entity within a specified time frame which is generally expressed in monetary terms In part, that is because the division of labour is not static but constantly evolving. Division of labour or specialization is the specialization of cooperative labour in specific circumscribed tasks and roles intended to increase the Productivity The general criterion which Marx suggests is that:

"If we have a function which, although in and for itself unproductive, is nevertheless a necessary moment of [economic] reproduction, then when this is transformed, through a division of labour, from the secondary activity of many into the exclusive activity of a few, into their special business, this does not change the character of the function itself" (Capital Vol. 2, Penguin ed. , p. 209).

Obviously, functions falling outside capitalist production altogether would not be capitalistically productive.

Generally, Marx seems to have regarded labour as mainly unproductive from the point of view of capitalist society as a whole, if it involved functions which have to do purely with:

This didn't necessarily mean that unproductive functions are not socially useful or economically useful in some sense; they might well be, but they normally did not directly add net new value to the total social product, that was the point, they were a (necessary) financial cost to society, paid for by a transfer of value created by the productive sector. Thus, they represented an appropriation or deduction from the surplus product, and not a net addition to it. Surplus product (German Mehrprodukt) is a concept explicitly theorised by Karl Marx in his critique of Political economy.

In the division of labour of modern advanced societies, unproductive functions in this Marxian sense occupy a very large part of the labour force; the wealthier a society is, the more "unproductive" functions it can afford. Division of labour or specialization is the specialization of cooperative labour in specific circumscribed tasks and roles intended to increase the Productivity In the USA for example, facilitating exchange processes and processing financial claims alone is the main activity of more than 20 million workers. Legal staff, police, security personnel and military employees number almost 5 million workers.

Productive labour as misfortune?

In the first volume of Das Kapital, Marx suggests that productive labour may be a misfortune:

"That labourer alone is productive, who produces surplus-value for the capitalist, and thus works for the valorisation of capital. The valorization of capital is a concept created by Karl Marx in his critique of Political economy. If we may take an example from outside the sphere of production of material objects, a schoolmaster is a productive labourer when, in addition to belabouring the heads of his scholars, he works like a horse to enrich the school proprietor. That the latter has laid out his capital in a teaching factory, instead of in a sausage factory, does not alter the relation. Hence the notion of a productive labourer implies not merely a relation between work and useful effect, between labourer and product of labour, but also a specific, social relation of production, a relation that has sprung up historically and stamps the labourer as the direct means of creating surplus-value. Relations of production (German Produktionsverhältnisse) is a concept frequently used by Karl Marx in his theory of Historical materialism and in To be a productive labourer is, therefore, not a piece of luck, but a misfortune. "

The idea here seems to be that being capitalistically "productive" effectively means "being exploited", or, at least, being employed to do work under the authority of someone else. Marx never finalised his concept of capitalistically productive labour, but clearly it involved both a technical relation (between work and its useful effect) and a social relation (the economic framework within which it was performed).

Ecological critique

The ecological critique focuses on mindless "production for production's sake", attacking both the neoclassical notion and the Marxist concept of "productiveness". It is argued noeclassical economics can understand the value of anything (and therefore the costs and benefits of an activity) only if it has a price, real or imputed. However, physical and human resources may have a value which cannot be expressed in price terms, and to turn them into an object of trade via some legal specification of property rights may be harmful to human life on earth. Activities may have non-priced costs and benefits which never feature on the balance sheet, at most in propaganda and advertising.

The Marxian view is also dismissed by ecologists, because it argues only human labour-time is the substance and source of economic value in capitalist society. Again, it is argued a very restricted idea of economic value is being operated with by Marxists. In part, this misses Marx's own point, namely that it was not him, but the growth of commercial trade which made labour-exploitation the fulcrum of wealth creation. Nevertheless, the ecological argument is that for the sake of a healthy future and a sustainable biosphere, a new valuation scheme for people and resources needs to be adopted. The biosphere is the broadest level of ecological study the global sum of all Ecosystems.

The core of this critique is clearly an ethical one: all the existing economic theories provide no healthy norms that would ensure correct stewardship for the environment in which all people have to live. Markets provide no moral norms of their own apart from the law of contract. To develop a better concept of "productiveness" would require a new morality, a new view of human beings and the environment in which they live, so that harmful economic activity can be outlawed, and healthy alternatives promoted.

Ecologists typically distinguish between "good" and "bad" market trade and production. Some believe capitalism can "go green" (producing in an environmentally friendly way), and that capitalism is "cleaner" than Soviet-type socialism. Capitalism is the Economic system in which the Means of production are owned by private Persons and operated for Profit and where Socialism refers to a broad set of economic theories of social organization advocating state or collective ownership and administration of the Means of production and distribution Others think that capitalism cannot "go green" because of the nature of the beast; so long as human accounting is done in terms of private costs and private profits, many "external effects" (externalities) will be disregarded, and at most legal restrictions can limit the environmental damage somewhat.

Material product accounts in Soviet-type societies

In the USSR and later other socialist countries in Eastern Europe, China and Cuba, a system of social accounts was created based around the notion of the "material product" (material product system, or "MPS"). The Union of Soviet Socialist Republics (USSR was a constitutionally Socialist state that existed in Eurasia from 1922 to 1991 Socialism refers to a broad set of economic theories of social organization advocating state or collective ownership and administration of the Means of production and distribution Eastern Europe is a general term that refers to the Geopolitical region encompassing the easternmost part of the European continent. China ( Wade-Giles ( Mandarin) Chung¹kuo² is a cultural region, an ancient Civilization, and depending on perspective a National The Republic of Cuba (ˈkjuːbə or) consists of the island of Cuba (the largest and second-most populous island of the Greater Antilles) Isla de la This was an alternative to GDP based accounts.

This system was, paradoxically, strongly influenced by Marx's critique of wealth creation in capitalist society, and his distinction between capitalistically productive and unproductive labour. The "material product" represented, in price terms, the net new value created annually by the production of tangible material goods. Many service industries were excluded from the material product; a rigorous statistical attempt was made to separate out a productive sector and an unproductive sector. Enterprise managers could be punished by law if they failed to provide accurate information.

Dissident socialists objected to this approach, because they felt that in a socialist society, "productive" labour should really be defined by such things as:

Since the end of communist rule in the USSR and Eastern Europe, however, the material product system has been abandoned, and new GDP-based accounts have been implemented following international standards recommended by the IMF, the World Bank and the United Nations System of National Accounts (UNSNA). The International Monetary Fund ( IMF) is an International organization that oversees the Global financial system by following the Macroeconomic The World Bank is an internationally supported Bank that provides financial and technical assistance to developing countries for development programs (e The United Nations System of National Accounts (often abbreviated as "SNA" or "UNSNA" is an international standard system of national accounts, first published The advantage of this change is that economic activity is more comprehensively valued and visible in monetary terms; a possible disadvantage is that no national accounting is done anymore of physical product units (e. g. x tons of steel produced, or y number of tractors assembled).

New mysteries of wealth creation and the modern mercantilism

Four important overall results of neo-liberal economic reforms since 1980 and of globalisation have been

As regards world trade, trading volumes have grown much faster each year than GDP. As a result, the value of exports and imports as a percentage of GDP has also increased. But this begins to undermine the GDP concept of "value added" from production, because if (for example) 10,000 pairs of slippers bought in Thailand or China for 50 cents each are resold by a distribution company in the USA for $10 each, a whole lot of "new value" suddenly appears out of nowhere.

The new value is attributed in accounts to American companies selling the slippers, but really the slippers were made overseas. In this way, it becomes increasingly more difficult to see who contributes what to the national product, or who creates new value rather than transferring it. A good percentage of the "national product" or "domestic product" might be just an appropriation of value from somewhere else, although this is difficult to identify or prove.

As regards speculative activity, this includes e. g. currency speculation, stock market speculation, trade in financial securities and real estate speculation. This results in capital gains, but typically the value of those capital gains (which can rise to between 10% and 20% of the national income, if unrealised capital gains are included) is not included in GDP.

In that case, the GDP concept of the value adding process not only fails to capture the increase in wealth, but also cannot be regarded anymore as a very reliable measure of national income. Value added refers to the additional value of a commodity over the cost of commodities used to produce it from the previous stage of production

For an example, in the USA, realised capital gains for tax purposes amounted an income of about 6. 5% of GDP in 2000 (at the peak of the boom), more than twice the amount of the annual increase in GDP. But if capital gains that were not cashed in or taxed are also included, the total would be much higher.

The effect of speculative activity is that assets seem to rise and fall in value, without there being any clear connection to productive activity at all anymore. In turn, this leads to a redefinition of wealth-creation: producing anything becomes less important than trading in assets as a source of wealth.

Because the trading circuits can become very complex (for example, a good may be exported, traded and re-exported while speculators stake futures on it, stockjobbers gamble stocks in the company, and currencies fluctuate) the ultimate sources of new wealth become increasingly more difficult to identify. Stockjobbers were institutions that acted as market makers in the London Stock Exchange.

In that case, the notion of "productive labour" or indeed productive activity as such seems to become increasingly irrelevant from an economic point of view, because all that really matters is whether a net income can be extracted from an activity or an asset, in whatever form. If a net income has been so extracted, then one's activity has been "productive". For the rest, what the costs and benefits of an activity are, might be interpreted in all sorts of ways.

As regards the grey economy, this means that an increasing portion of wealth is produced and distributed in illegal, informal or semi-legal circuits which fail to be captured in official economic data. A grey market or gray market is the trade of a commodity through distribution channels which while legal are unofficial unauthorized or unintended by the original manufacturer The techniques used here may include creative accounting, money laundering, abusive trust arrangements obscuring real ownership, tax dodging and underreporting which exploits legal loopholes, setting up company headquarters in a foreign country to dodge taxes, "cross sharing" (setting up licensing authorities abroad), transfer pricing, and numerous other practices. Creative accounting and earnings management are Euphemisms referring to Accounting practices that may ”follow the letter of the rules of Standard Money laundering is the practice of engaging in financial Transactions in order to conceal the Identity, source and/or destination of Money, Transfer pricing refers to the Pricing of contributions (assets tangible and intangible services and funds transferred within an organization

But most often, assets and profits are shifted between separate legal territories to avoid and evade taxation and scrutiny. In that case again, the source of new wealth becomes obscured, and it is difficult to link productive activity anymore to the value or income it creates.

In the case of services, it often becomes difficult to know - even for a statistician - what the real cost of a service is, and what the real "product" or commodity is, that is being purchased. A commodity is anything for which there is demand but which is supplied without qualitative differentiation across a market Particularly in the case of newly emerging services, it may also take quite some time before realistic "market rates" are established.

Operating a commercial transaction or acting as intermediary may be a service, but how that service "adds value", or what its real economic role is, may not be very clear. Often in this area of economic activity a lot depends on having access to specialised information, skills and knowledge; if restrictions to access apply (for example through laws and regulations, licensing, patents, and copyrights), a much higher fee can be charged. A patent is a set of Exclusive rights granted by a State to an inventor or his assignee for a fixed period of time in exchange for a disclosure of an Copyright is a legal concept enacted by Governments, giving the creator of an original work of authorship Exclusive rights to control its distribution usually for

On the other hand, if items of information and knowledge become widely known, or are displaced by other items, their economic value may quickly and suddenly fall. Thus, much may depend on the clever marketing of an idea, and guarding the conditions of access to it. In popular usage "marketing" is the promotion of products especially Advertising and Branding However in professional usage the term has a wider meaning of

The overall effect again tends to be one of obscuring the real relationship between a product, the labour that produces it, and the income that it generates.

Even if old notions of "productive labour" are regarded as outdated or impossible to operationalise, however, the classical question of the justification of different forms of wealth creation, distribution and ownership - and the division of labour which they imply - remains. Wealth derives from the old English word "weal" which means "well-being Division of labour or specialization is the specialization of cooperative labour in specific circumscribed tasks and roles intended to increase the Productivity Quite possibly the economics of the future will focus much more on the social goals which different economic arrangements serve to realise. Certainly, surveys suggest that, at least in richer countries, people are much more concerned with social issues than about economic fundamentals - arguably a mixed blessing, since it obviously takes economics to deliver the goods and services they want.

See also

References

http://www.marxists.org/archive/marx/works/1863/theories-surplus-value/ch04.htm

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