Political Economist

 1. Discuss the concept of productive labor in Smith and Marx. Why is the concept introduced? What is its characteristic structure in each author? What are some implications of the concepts? What arenas, if any, do you think it might apply to in the modern world?

Labor is considered as organizing activities of human being to produce various kinds of products in classical political economists. In Smith’s perspective, labor not only produces goods and services but also produce the secondary products such as machinery and raw materials. This production scheme is radically different from that of neoclassical economic theory where machinery and raw materials are considered with labor only as inputs to produce certain amount of products, outputs.

The distinction between productive labor and unproductive labor is derived from Smith’s arguments. According to him, the productive labor is related to direct material production. Unlike unproductive labor, this always adds to value. On the contrary, unproductive labor has nothing to do with value-added labor. For example, the labor or activity of “the sovereign and his officer of justice and war,” “the labor of menial servants” do not increase the value even though their labor deserves to be rewarded. The labor of those “who are engaged in protection,” “security of the commonwealth” also does not add to the value. Their activities, the products of their labor always perish “in the very instant of their performance.”

With this distinction, Adam Smith was able to draw a sharp line between those who were engaged in material production and those who were maintained by the industry of other peoples. Even though this concept did not have any moral, ethical connotation, and even though there are many ‘unproductive labor’ which produce ‘social utilities,’ this concept and distinction between the two provided useful parameter with which political economist could estimate and measure the significance of productive activity. With this distinction, Smith attacked socio-political obstacles or hindrance laid in front of the increasing accumulation of capital, and thus the increase of the wealth of nation.

According to Ronald Meek’s explanation, Smith regarded accumulation of capital as a basic motive and a cause of the increase of the wealth of nation. In order to reveal the nature and cause of the increase of the wealth of nations, it was necessary for Smith to analyze the process of modern economy, and the source of value. That is a reason why Smith introduced the concept of productive labor and its differentiation from unproductive labor. While doing so, Smith was able to criticize certain political institutions which hindered the accumulation of capital, and attack particular social attitudes which discouraged the increase of wealth.

Marx also maintains similar distinction between productive labor and nonproductive labor. In the first place, Marx uses the term, productive labor in relation to the concept of use value. Use value is a product of concrete productive labor. However, the distinction between production labor and non-production labor is not identical to the distinction between use value and exchange value. In Marx’s approach, the distinction between the two concepts is closely related to his theory of surplus value. While Smith described productive labor as the labor which add value in material production to wealth of nation, Marx attributed the productive labor only to that produces surplus value in the capitalist labor process.

2. Compare the treatment of profits in Smith, Ricardo and Marx. How does each introduce the issue? How does Marx’s analysis of profit differ from that of others? What are some implications of these differences? What is the role of rent in all of this?

The theory of profit is among the most significant issues in classical political economists. Unlike modern neoclassical economists, most classical political economists pointed out the long term tendency of falling rate of profit in the capitalist mode of production with various reasons. In this essay, I will present different treatments of profit by Smith, Ricardo and Marx, and show the general features of their theory.

First of all, Smith introduced this issue in his Wealth of Nations. In order to understand Smith’s theory of profit and price, we should pay attention to his theoretical procedure. He postulates that there was ‘rude and early state’ of society where there is no ‘profit’ or ‘rent.’ In that society there is only ‘income.’ In this society, price of product will be proportional to labor time, and thus the relative income will be equalized through competition among producers.

Smith went further to examine the possibilities of modification of the labor theory of value and the price when modern capitalist economy is prevailed. Unlike ‘rude and early state’ of society, there are social classes and the differentiation between wages and profits (rents) in developed economic circumstance.

Even in this situation, Smith asserted that the regulation of exchange need not be disturbed directly by labor time. Even if the total amount of income should be divided into wages and profits, competition will still produce equal income for workers. In order words, there will exist equal wage across the production sectors.

However, Smith pointed out that if there exist equal rate of profit on capital in two production sectors, ‘competitive outcome for capital’ would exist. But if the rate of profit on capital, namely the ratio between profit and capital, is different from each other, then the principle will no longer hold. Smith called this ‘modification of rule.’

In sum, in Smith’s perspective, the value added is considered to be split into wage and profit in modern capitalist economy. The existence of accumulation of capital and the appropriation of land, namely the existence of different social class incomes, e.g., profits and rents modifies the determination of relative value by the relative labor time bestowed on its commodity. In this way, Smith was not consistent in the theory of labor value. He said at the end of the book that ‘three forms of incomes are the independent sources and elements of income.’

Smith also mentioned the ‘falling rate of profit.’ He said that ‘as accumulation raises capital stock, the increased competition lead to profit falling down.’ However Smith did not elaborate this mechanism in detail.