Productive and Unproductive Labour - Classical Political Economy

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 increase wealth. In the Introduction to The Wealth of Nations, Smith spoke of the "annual labour" and "the necessaries and conveniences" a nation "annually consumes" before explaining that one of the two steps to increase wealth is reducing the amount of "unproductive labour". "Annual" and "annually" refer to a cyclical reproduction process; "unproductive labour" are commodities and services which are not inputs to the next economic circle and are therefore lost to economic growth. In contrast, theories with no such time horizon tend to understand Smith's unproductive labour as referring to services, and productive labour as meaning vendible goods. Smith’s distinction between productive and unproductive labour corresponds to Sraffa’s (1960) distinction of basic and non-basic goods, as basic goods re-enter the productive process, whereas non-basic goods are destined for consumption, with no value for reproduction.

As Edwin Cannan observes, Smith’s view of annual reproduction and as a consequence the distinction of productive and unproductive labour stems from his meeting, and the influence of, the French economists known as the Physiocrats. To the Physiocrats artisans and manufacturers are considered as "classe sterile" or unproductive labour because as a result of French income distribution they worked primarily for the nobles and the church. Before his visit to France in his Theory of Moral Sentiments Adam Smith sees the gluttony of the landlords as an "invisible hand" which helps the poor to partake in the landlords wealth. In The Wealth of Nations it is seen as the consumption of unproductive labour, limiting the growth of wealth.

Smith's view that human labour – but not unproductive labour – is the source of wealth reflects the classical position that all commodities can be reduced to actual labour and produced inputs which in turn resolve into labour and former inputs. In competitive economies, i.e. in economies without "rents" because of monopolies, the value of a commodity is determined by the amount of embodied labour: direct labour and "dated" labour, indicating the difficulties of production plus interest for past labour. This contrasts to neoclassical economics where the price is the addition of the productive contribution of various factors of production.

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 in the sense of making a net addition to it - in other words, such tasks represented a net cost to the enterprise which had to be minimized.

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.

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".