Unproductive labour in economic theory
Encyclopedia
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 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.
Neoclassical economics
is a special case as it presupposes a homo oeconomicus
whose labours always produces utility; so the construction of this theory excludes by definition the concept of unproductive labour as everything done produces utility. If neoclassical utility can be equated to what Adam Smith called the conveniences of life it would be not very incorrect to say from a classical point of view that classical economics promotes productive labour and neoclassical economics promotes unproductive labour. More precisely, neoclassical economics is concerned primarily with production even if – from a classical point of view – this means the production of unproductive labour. Classical economics is concerned primarily with distribution (and technological progress) to avoid that too much productive capacity is used for unproductive labour.
had in physics. In classical physics, for Newton
and afterwards, phlogiston was the essential concept to explain combustion
until oxygen
was fully understood as an element. Modern physics is ashamed of phlogiston. Similarly in classical economics
– which called itself 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.
. 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.
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.
(1662), Cantillon
(1732) and earlier. But it was Quesnay
and his followers – the Économistes – who formalized this concept in a 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 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 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 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 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 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".
shows that Adam Smith’s "Wealth" follows the design of his earlier lectures, but that there are important additions due to his visit to France. These additions were so important for Smith that he puts them at the beginning of his work. For Cannan as a neoclassic economist they are superfluous and not the real Adam Smith: "These changes do not make so much real difference to Smith’s own work as might be supposed; the theory of distribution, thought it appears in the title of Book I., is no essential part of the work and could easily be excised … But to subsequent [classical] economics they were of fundamental importance. They settled the form of economic treatises for a century at least." The "Wealth of Nation" is therefore inhomogeneous and consists of the earlier elements of an individualistic strain in the tradition of Aristotle
, Puffendorf
and Hutcheson
, Smith’s teacher, – elements compatible with a neoclassical theory – and the classical theory Smith learned in France. Ricardo in his "Principles of Political Economy and Taxation"
(1817) endeavoured to put this inconsistencies straight.
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;
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:
Ricardo’s recipe to increase "wealth" is identical:
[T]he wealth of a country may be increased in two ways:
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
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 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":
(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.
of text-books but in Keynes’ "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.
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. "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."
This is as correct in neoclassical micro-economics as it is wrong in classical macro-economics. The aim of classical economics is not to produce micro-economic “utility” and it does not compare interpersonal utilities. Classical economics aims to enhance macro-economic reproduction and that means avoiding unproductive labour. Classical and neoclassical economics hate monopolies but for different reasons. For neoclassical economists monopolies produce misallocations of "factors of production". For classical economists monopolies cause "unearned income" or "rents" and allow buying unproductive labour. In a world without monopolies competition would only allow earned incomes and little margin to buy unproductive labour. Workers without unions would receive subsistence wages and regarding entrepreneurs Ricardo states: "Neither the farmer who cultivates that quantity of land, which regulates price, nor the manufacturer, who manufactures goods, sacrifice any portion of the produce for rent. The whole value of their commodities is divided into two portions only: one constitutes the profits of stock, the other the wages of labour". No wonder every business tries to position itself in the market to have a partial monopoly over competitors.
When British landlords endeavoured to stretch the favourable position they enjoyed during the Napoleonic blockade by passing the Corn Laws
, Ricardian analysis showed that this could endanger economic progress. The incipient industrial bourgeoisie was still far away from the levers of power and Ricardian theory helped this party to overturn the Corn Laws.
Once industrialisation was established the landed gentry became unimportant and unionised workers important. Karl Marx provided a theoretical justification that helped unions to claim an improved reproduction of the workforce. No wonder entrepreneurs favoured a theory showing that Big Labour and other monopolies mean misplaced resources if micro-economic marginal productivities of factors of production do not correspond to relative incomes; neoclassical economics offered this service. Exactly this argument became counterproductive during the Great Depression
(1929-WW2) as low wages meant low demand; Keynes’ macro-economic argument about reproduction was therefore resisted in the US as it contradicts neoclassical economic logic.
Apparently the productivity of an economic theory depends on the economic situation as viewed by a social class; but sometimes a social class resists the theory cut out to help it – French aristocrats dropped Physiocracy and us-American business fought Keynesianism. On occasions not social interest but intellectual integrity is at stake for instance when Samuelson states: “One of Ricardo’s contributions lay in a thorough analysis of the nature of economic rent – a theory that survives almost intact today”. To impute Ricardo neoclassical views is defamation.
Classical and neoclassical economists despise monopolies. For classical economists the landed gentry receive “rents” as a monopoly income – unearned income – as land is not reproducible and private. Rent depend on the differences of productivity of a plot compared to marginal land which pays no rent. This classical argument about the productivity of heterogeneous land and its consequences on demand is mispresented by neoclassical economists as an argument about the productivity of additional amounts of homogeneous land. Ricardo’s tautological proposition – worse land produces less – is translated into an empirical proposition – which may be right or wrong – about the productivity of additional plots of homogeneous land. A monopoly income conducing to demand unproductive labour is twisted into an income earned under competitive conditions and demanding productive labour.
The social message of neoclassical theory – “what a social class gets is, under natural law, what it contributes to the general output of industry” (John Bates Clark
) – is certainly as politically correct as Quesnay’s assertion that only land is productive. But it is economically wrong as heterogeneous land allows landowners monopolistic “rents”, presented by neoclassical theory as a non-monopolistic income of homogeneous land. And that under competition the bargaining position of a labourer equals the bargaining position of the entrepreneur is at least arguable. Years before the mentioned John Bates Clark asserted: “It is a dangerous mistake to extol competition, as such too highly, and regard all attacks upon it as revolutionary. … We do not eat men … but we do it by such indirect and refined methods that it does not generally occur to us that we are cannibals.” But this was before the cleansing of socialists – Christians and others – from educational institution in the US as a reaction to the Haymarket affair
..
Neoclassical economics
Neoclassical economics
Neoclassical economics is a term variously used for approaches to economics focusing on the determination of prices, outputs, and income distributions in markets through supply and demand, often mediated through a hypothesized maximization of utility by income-constrained individuals and of profits...
is a special case as it presupposes a homo oeconomicus
Homo Oeconomicus
Homo Oeconomicus is an interdisciplinary peer reviewed academic journal publishing studies in classical and neoclassical economics, public choice and social choice theory, law and economics, and philosophy of economics....
whose labours always produces utility; so the construction of this theory excludes by definition the concept of unproductive labour as everything done produces utility. If neoclassical utility can be equated to what Adam Smith called the conveniences of life it would be not very incorrect to say from a classical point of view that classical economics promotes productive labour and neoclassical economics promotes unproductive labour. More precisely, neoclassical economics is concerned primarily with production even if – from a classical point of view – this means the production of unproductive labour. Classical economics is concerned primarily with distribution (and technological progress) to avoid that too much productive capacity is used for unproductive labour.
Unproductive labour in economic theory
In economic theory the concept of unproductive labour had a similar fate as phlogistonPhlogiston theory
The phlogiston theory , first stated in 1667 by Johann Joachim Becher, is an obsolete scientific theory that postulated the existence of a fire-like element called "phlogiston", which was contained within combustible bodies and released during combustion...
had in physics. In classical physics, for Newton
Isaac Newton
Sir Isaac Newton PRS was an English physicist, mathematician, astronomer, natural philosopher, alchemist, and theologian, who has been "considered by many to be the greatest and most influential scientist who ever lived."...
and afterwards, phlogiston was the essential concept to explain combustion
Combustion
Combustion or burning is the sequence of exothermic chemical reactions between a fuel and an oxidant accompanied by the production of heat and conversion of chemical species. The release of heat can result in the production of light in the form of either glowing or a flame...
until oxygen
Oxygen
Oxygen is the element with atomic number 8 and represented by the symbol O. Its name derives from the Greek roots ὀξύς and -γενής , because at the time of naming, it was mistakenly thought that all acids required oxygen in their composition...
was fully understood as an element. Modern physics is ashamed of phlogiston. Similarly in classical economics
Classical economics
Classical economics is widely regarded as the first modern school of economic thought. Its major developers include Adam Smith, Jean-Baptiste Say, David Ricardo, Thomas Malthus and John Stuart Mill....
– which called itself Political Economy
Political economy
Political economy originally was the term for studying production, buying, and selling, and their relations with law, custom, and government, as well as with the distribution of national income and wealth, including through the budget process. Political economy originated in moral philosophy...
– 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
Cambridge capital controversy
The Cambridge capital controversy – sometimes simply called "the capital controversy" – refers to a theoretical and mathematical debate during the 1960s among economists concerning the nature and role of capital goods and the critique of the dominant neoclassical vision of aggregate...
(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
Piero Sraffa
Piero Sraffa was an influential Italian economist whose book Production of Commodities by Means of Commodities is taken as founding the Neo-Ricardian school of Economics.- Early life :...
(1960) presentation of this Ricardian
David Ricardo
David Ricardo was an English political economist, often credited with systematising economics, and was one of the most influential of the classical economists, along with Thomas Malthus, Adam Smith, and John Stuart Mill. He was also a member of Parliament, businessman, financier and speculator,...
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 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 homo oeconomicusHomo Oeconomicus
Homo Oeconomicus is an interdisciplinary peer reviewed academic journal publishing studies in classical and neoclassical economics, public choice and social choice theory, law and economics, and philosophy of economics....
. 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
Joseph Schumpeter
Joseph Alois Schumpeter was an Austrian-Hungarian-American economist and political scientist. He popularized the term "creative destruction" in economics.-Life:...
declares unproductive labour a dusty museum piece.
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. MercantilismMercantilism
Mercantilism is the economic doctrine in which government control of foreign trade is of paramount importance for ensuring the prosperity and security of the state. In particular, it demands a positive balance of trade. Mercantilism dominated Western European economic policy and discourse from...
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 PettyWilliam Petty
Sir William Petty FRS was an English economist, scientist and philosopher. He first became prominent serving Oliver Cromwell and Commonwealth in Ireland. He developed efficient methods to survey the land that was to be confiscated and given to Cromwell's soldiers...
(1662), Cantillon
Richard Cantillon
Richard Cantillon was an Irish-French economist and author of Essai sur la Nature du Commerce en Général , a book considered by William Stanley Jevons to be the "cradle of political economy". Although little information exists on Cantillon's life, it is known that he became a successful banker and...
(1732) and earlier. But it was Quesnay
François Quesnay
François Quesnay was a French economist of the Physiocratic school. He is known for publishing the "Tableau économique" in 1758, which provided the foundations of the ideas of the Physiocrats...
and his followers – the Économistes – who formalized this concept in a Tableau économique
Tableau économique
The Tableau économique or Economic Table is an economic model first described in François Quesnay in 1759, which lay the foundation of the Physiocrats’ economic theories....
(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 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 classical economics
Classical economics
Classical economics is widely regarded as the first modern school of economic thought. Its major developers include Adam Smith, Jean-Baptiste Say, David Ricardo, Thomas Malthus and John Stuart Mill....
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
Louis XIV of France
Louis XIV , known as Louis the Great or the Sun King , was a Bourbon monarch who ruled as King of France and Navarre. His reign, from 1643 to his death in 1715, began at the age of four and lasted seventy-two years, three months, and eighteen days...
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 Physiocracy).
Quesnay’s analysis was highly political. The "Theorie de l’impôts" (1760) written by Quesnay and the elder Mirabeau
Victor de Riqueti, marquis de Mirabeau
Victor de Riquetti, marquis de Mirabeau was a French economist of the Physiocratic school. He was the father of great Honoré, Comte de Mirabeau and is, in distinction, often referred to as 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 cognitive dissonance
Cognitive dissonance
Cognitive dissonance is a discomfort caused by holding conflicting ideas simultaneously. The theory of cognitive dissonance proposes that people have a motivational drive to reduce dissonance. They do this by changing their attitudes, beliefs, and actions. Dissonance is also reduced by justifying,...
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
On the Principles of Political Economy and Taxation
On the Principles of Political Economy and Taxation is a book by David Ricardo on economics. The book concludes that land rent grows as population increases...
" (1817) that "to determine the laws which regulate … distribution, is the principal problem in Political Economy".
With the fall of Turgot
Anne Robert Jacques Turgot, Baron de Laune
Anne-Robert-Jacques Turgot, Baron de Laune , often referred to as Turgot, was a French economist and statesman. Turgot was a student of Francois Quesnay and as such belonged to the Physiocratic school of economic thought...
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 French Revolution
French Revolution
The French Revolution , sometimes distinguished as the 'Great French Revolution' , was a period of radical social and political upheaval in France and Europe. The absolute monarchy that had ruled France for centuries collapsed in three years...
.
Adam Smith – before his voyage to France (1764–1766) – mentions in his "Theory of Moral Sentiments
The Theory of Moral Sentiments
The Theory of Moral Sentiments was written by Adam Smith in 1759. It provided the ethical, philosophical, psychological, and methodological underpinnings to Smith's later works, including The Wealth of Nations , A Treatise on Public Opulence , Essays on Philosophical Subjects , and Lectures on...
" (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
In the Preface to his edition of the "Wealth of Nations", CannanEdwin Cannan
Edwin Cannan was a British economist and historian of economic thought. He was a professor at the London School of Economics from 1895 to 1926....
shows that Adam Smith’s "Wealth" follows the design of his earlier lectures, but that there are important additions due to his visit to France. These additions were so important for Smith that he puts them at the beginning of his work. For Cannan as a neoclassic economist they are superfluous and not the real Adam Smith: "These changes do not make so much real difference to Smith’s own work as might be supposed; the theory of distribution, thought it appears in the title of Book I., is no essential part of the work and could easily be excised … But to subsequent [classical] economics they were of fundamental importance. They settled the form of economic treatises for a century at least." The "Wealth of Nation" is therefore inhomogeneous and consists of the earlier elements of an individualistic strain in the tradition of Aristotle
Aristotle
Aristotle was a Greek philosopher and polymath, a student of Plato and teacher of Alexander the Great. His writings cover many subjects, including physics, metaphysics, poetry, theater, music, logic, rhetoric, linguistics, politics, government, ethics, biology, and zoology...
, Puffendorf
Samuel von Pufendorf
Baron Samuel von Pufendorf was a German jurist, political philosopher, economist, statesman, and historian. His name was just Samuel Pufendorf until he was ennobled in 1684; he was made a Freiherr a few months before his death in 1694...
and Hutcheson
Francis Hutcheson
Francis Hutcheson may refer to:*Francis Hutcheson *Francis Hutcheson -See also:*Frank Hutchison, blues musician*Francis Hutchinson, British clergyman...
, Smith’s teacher, – elements compatible with a neoclassical theory – and the classical theory Smith learned in France. Ricardo in his "Principles of Political Economy and Taxation"
On the Principles of Political Economy and Taxation
On the Principles of Political Economy and Taxation is a book by David Ricardo on economics. The book concludes that land rent grows as population increases...
(1817) endeavoured to put this inconsistencies straight.
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. MillJohn Stuart MillJohn Stuart Mill was a British philosopher, economist and civil servant. An influential contributor to social theory, political theory, and political economy, his conception of liberty justified the freedom of the individual in opposition to unlimited state control. He was a proponent of...
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 Wage-Fund DoctrineWage-fund doctrine
The Wage-Fund Doctrine is an expression that comes from early economic theory that seeks to show that the amount of money a worker earns in wages, paid to them from a fixed amount of funds available to employers each year , is determined by the relationship of wages and capital to any changes in...
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. LeontiefWassily Leontief
Wassily Wassilyovich Leontief , was a Russian-American economist notable for his research on how changes in one economic sector may have an effect on other sectors. Leontief won the Nobel Committee's Nobel Memorial Prize in Economic Sciences in 1973, and three of his doctoral students have also...
(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 KeynesianismKeynesian economics
Keynesian economics is a school of macroeconomic thought based on the ideas of 20th-century English economist John Maynard Keynes.Keynesian economics argues that private sector decisions sometimes lead to inefficient macroeconomic outcomes and, therefore, advocates active policy responses by the...
of text-books but in Keynes’ "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. "Das Kapital
Das Kapital
Das Kapital, Kritik der politischen Ökonomie , by Karl Marx, is a critical analysis of capitalism as political economy, meant to reveal the economic laws of the capitalist mode of production, and how it was the precursor of the socialist mode of production.- Themes :In Capital: Critique of...
" (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" – a value judgement?
For neoclassical theory, to call one type of commodities and services productive and the other unproductive is a value judgement and unscientific. Homo oeconomicus is rational and all labour produces utility. To compare the utility a commodity gives to an aristocrat – unproductive labour – with the utility it would give to a labourer – productive labour – means interpersonal comparisons of utility and this is impossible.This is as correct in neoclassical micro-economics as it is wrong in classical macro-economics. The aim of classical economics is not to produce micro-economic “utility” and it does not compare interpersonal utilities. Classical economics aims to enhance macro-economic reproduction and that means avoiding unproductive labour. Classical and neoclassical economics hate monopolies but for different reasons. For neoclassical economists monopolies produce misallocations of "factors of production". For classical economists monopolies cause "unearned income" or "rents" and allow buying unproductive labour. In a world without monopolies competition would only allow earned incomes and little margin to buy unproductive labour. Workers without unions would receive subsistence wages and regarding entrepreneurs Ricardo states: "Neither the farmer who cultivates that quantity of land, which regulates price, nor the manufacturer, who manufactures goods, sacrifice any portion of the produce for rent. The whole value of their commodities is divided into two portions only: one constitutes the profits of stock, the other the wages of labour". No wonder every business tries to position itself in the market to have a partial monopoly over competitors.
Economic theories – productive or unproductive?
It has been shown that for feudal France – if it is worthwhile to save this system – Quesnay’s proposal was highly productive; it would have allowed its reproduction and continuation – avoiding the French Revolution. In this situation, a theory unable to distinguish between productive and unproductive labour ignores the basic fact of this economy and – being no contribution to its reproduction – has to be considered as unproductive.When British landlords endeavoured to stretch the favourable position they enjoyed during the Napoleonic blockade by passing the Corn Laws
Corn Laws
The Corn Laws were trade barriers designed to protect cereal producers in the United Kingdom of Great Britain and Ireland against competition from less expensive foreign imports between 1815 and 1846. The barriers were introduced by the Importation Act 1815 and repealed by the Importation Act 1846...
, Ricardian analysis showed that this could endanger economic progress. The incipient industrial bourgeoisie was still far away from the levers of power and Ricardian theory helped this party to overturn the Corn Laws.
Once industrialisation was established the landed gentry became unimportant and unionised workers important. Karl Marx provided a theoretical justification that helped unions to claim an improved reproduction of the workforce. No wonder entrepreneurs favoured a theory showing that Big Labour and other monopolies mean misplaced resources if micro-economic marginal productivities of factors of production do not correspond to relative incomes; neoclassical economics offered this service. Exactly this argument became counterproductive during the Great Depression
Great Depression
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...
(1929-WW2) as low wages meant low demand; Keynes’ macro-economic argument about reproduction was therefore resisted in the US as it contradicts neoclassical economic logic.
Apparently the productivity of an economic theory depends on the economic situation as viewed by a social class; but sometimes a social class resists the theory cut out to help it – French aristocrats dropped Physiocracy and us-American business fought Keynesianism. On occasions not social interest but intellectual integrity is at stake for instance when Samuelson states: “One of Ricardo’s contributions lay in a thorough analysis of the nature of economic rent – a theory that survives almost intact today”. To impute Ricardo neoclassical views is defamation.
Classical and neoclassical economists despise monopolies. For classical economists the landed gentry receive “rents” as a monopoly income – unearned income – as land is not reproducible and private. Rent depend on the differences of productivity of a plot compared to marginal land which pays no rent. This classical argument about the productivity of heterogeneous land and its consequences on demand is mispresented by neoclassical economists as an argument about the productivity of additional amounts of homogeneous land. Ricardo’s tautological proposition – worse land produces less – is translated into an empirical proposition – which may be right or wrong – about the productivity of additional plots of homogeneous land. A monopoly income conducing to demand unproductive labour is twisted into an income earned under competitive conditions and demanding productive labour.
The social message of neoclassical theory – “what a social class gets is, under natural law, what it contributes to the general output of industry” (John Bates Clark
John Bates Clark
John Bates Clark was an American neoclassical economist. He was one of the pioneers of the marginalist revolution and opponent to the Institutionalist school of economics, and spent most of his career teaching at Columbia University.-Biography:Clark was born and raised in Providence, Rhode...
) – is certainly as politically correct as Quesnay’s assertion that only land is productive. But it is economically wrong as heterogeneous land allows landowners monopolistic “rents”, presented by neoclassical theory as a non-monopolistic income of homogeneous land. And that under competition the bargaining position of a labourer equals the bargaining position of the entrepreneur is at least arguable. Years before the mentioned John Bates Clark asserted: “It is a dangerous mistake to extol competition, as such too highly, and regard all attacks upon it as revolutionary. … We do not eat men … but we do it by such indirect and refined methods that it does not generally occur to us that we are cannibals.” But this was before the cleansing of socialists – Christians and others – from educational institution in the US as a reaction to the Haymarket affair
Haymarket affair
The Haymarket affair was a demonstration and unrest that took place on Tuesday May 4, 1886, at the Haymarket Square in Chicago. It began as a rally in support of striking workers. An unknown person threw a dynamite bomb at police as they dispersed the public meeting...
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