Friday, February 10, 2012

Adam Smith on Unproductive Labour

Karl W. Eli (New York) writes to the Financial Times HERE

“‘Trivial’ professions – but necessary”

“Jagdish Bhagwati criticises Adam Smith for condemning the labours of “churchmen, lawyers, physicians, men of letters of all kinds, players, buffoons, musicians etc”.

I am surprised that Jagdish Bahadwati may have slipped up here, as might Karl Eli).

Adam Smith did not condemn the “unproductive” sectors; he categorized them by whether they added to the annual revenue of a society or whether they spent resources without replacing them in the ‘great wheel of circulation’.

Admittedly, this was rather blunt designation, and much misunderstood, because, perhaps, it is mixed up with prodigality – spending your income with replacing it while en route to bankruptcy.

The army and Royal Navy were ‘unproductive’ – they consumed what was allocated to them. However, the commercial suppliers of victuals, weaponry, munitions, uniforms, and such like, were productive. They aimed to make a profit on their labours and such profits added to the country’s annual revenues.

Likewise necessary inputs into the legal professions (quills, gowns, wigs, fitted-out court rooms, books, uniforms, provisions, the services of inns, jails, and such like) when produced commercially, were productive. Similarly, theatre owners and their staff, artistes and playwrights, hotel owners and their servants, musicians and their instruments, printers of their posters and bills, their costumes, including for buffoons, even puppeteers and commercial makers of their dolls, were productive, as were those employed in providing wine (France), whisky (Scotland), gin, and beer (England) - when they produced profits - were productive.

In practice, the expense of Sovereigns and their Courts, invariably ran at a loss, but their bankers, lenders (risky if Jewish because regularly pillaged), producers of fine furniture, clothes, jewelry, plates, paintings, and so on, if they made a profit could be productive, and those of their suppliers in the supply chain, who managed to get profits from successful payment, also made a productive contribution to annual revenue.

There was no question of these groups being non-useful or unnecessary. Smith’s definition made it clear that it was their contribution or otherwise to society’s annual revenue that determined their productivity, not their social value.

Adam Smith’s comment was in fact even-handed, if we read his not very clearly expressed meaning.



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