From My Notebook no. 20
Smith on
“Productive and Unproductive Labour” (aka: LTV = Labour Theory of Value in
Wealth Of Nations)
LTV and
productive work, this has moved on a lot since Smith, mainly into obscurity.
Much has been made of this little problem in the literature. It
is quite simple, or simpler, than is made out.
Smith
regarded productive labour as the kind that produced a “revenue”, to cover
costs, and a portion to provided that part of that could be invested.
Unproductive labour did not produce a revenue beyond what it cost.
Take defence.
That product did not produce a revenue for the buyer - it was not sold on
mainly (if sold it was still unproductive for the buyer and seldom was sold for
a profit. It was paid for by the government by taxation receipts.
Defence goods - ships, artillery, weapons and ammunition, subsistence for
soldiers, seamen and administrators - do not earn revenue from selling their
services. These are unproductive for government buyers.
However,
labour used by the suppliers of defence goods to the government is productive.
They earn revenue from sales of defence goods, including subsistence
goods, to governments. The revenue earned by defence suppliers to the
government, covers the suppliers' costs and their profits, which can be
invested for further rounds of production, therefore their labour is
productive.
The
distinction is important. Foreign wars do not destroy domestic
infrastructure like wars fought on their own territories. The costs of
replacement of domestic assets fall on foreign countries whose territories are
invaded, not on the domestic economy of the invaders. (England benefitted
from wars on foreign soil; it 'lost' its domestic resources in colonial wars).
The 7-Years War cost the UK £100 million, which reduced domestic capital
by that much plus possible future profits from alternative domestic uses of the
capital raised by taxation/borrowing to fight those wars.
However,
Smith's focus was on the productive/unproductive distinction, though some of his
examples were obscure and incorrect. Household wine consumption was
unproductive - the costs of such products did not produce for the household a
revenue - the wine was drunk and could only be replaced by more taxation and
borrowing. However, the wine suppliers earned their revenue from selling
wines, etc., to households, which produced a income for the suppliers, covering
their costs and a profit. The wine trade was productive for producers and for
sellers but unproductive for consumers.
Interestingly,
purveyors of wine products to hotels, inns, and restaurants, were productive
when they covered their costs and made investable profits frm their sales to
consumers.
Customers of
brothels spent their services unproductively while owners of the brothels who
supplied of such services were productive - they earned incomes above their
costs and could invest them in other activities. (This may not apply to
the female sex labourers quite so distinctly, though I know of one female
graduate who later worked at the top-end of this profession and made a small
fortune before retiring). Marx
made this point in his criticism of Smith; so were lawyers and scriveners,
etc., who sold their services to customers and made a revenue plus a profit.
Judges, court
officials, prisons, etc. were unproductive and were supported by taxation and
fines, and personal litigation costs. As were beach puppet show owners -
they earned profit from the adults and children who paid their pennies to watch
the shows. Such puppeteers earned income and after the costs of their
booth, and public fees. After they
paid their costs and made a profit to invest in further rounds they were
productive.
Smith's somewhat
confusing presentation focused too narrowly at the transaction from one side (the
customers) and did not make clear his definitions and the distinctions
associated with each side of the transactions that were necessarily involved.
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