If monetarists have a rigorous definition of money that picks out one unique time series, I do not know of it. Suppose they find some correlation between, say, M2 and a price level. And suppose that correlation subsequently breaks down. They need not take this as evidence against their theory. For they can always search for another time series for the quantity of money and a different price deflator.
Likewise, economists building on Marxism, as I understand it, have not settled upon a rigorous theoretical definition of the distinction between productive and non-productive labor. For example, I don't think Marx - especially in the first volume of Theories of Surplus Value - argues that all services are unproductive of surplus value. Rather, his distinction is between labor that produces surplus value and other labor. Duncan Foley finds a tighter correlation between real national income, excluding services, and non-farm employment than he does between all national income and non-farm employment. By my argument, I do not take this as dispositive evidence for Marx's distinction. I worry that which correlation works best can vary by time period and time series.
Nevertheless, I find Foley's analysis of interest. Finance, Insurance, and Real Estate (FIRE) certainly seems to need more analysis by economists in these days.
References
- Duncan K. Foley (2011) "The Political Economy of Output and Employment 2001-2010"
- James K. Galbraith, Olivier G. Giovannoni, and Ann J. Russo (2007) "The Fed's Real Reaction Function: Monetary Policy, Inflation, Unemployment, Inequality - and Presidential Politics"
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6 comments:
Both papers are very interesting. Thanks for posting the links.
I would like to hear your views on the J.K. Galbraith et al paper.
As you know, the subject of central banks, interest rates, and unemployment is becoming quite hot in countries like the U.S. and Australia.
In Australia, for instance, there is a debate around the performance of the RBA (Australian central bank) in the aftermath of the 2008-2009 crisis.
Some pundits have remarked that the RBA has increased interest rates excessively and too prematurely; while others would like to see further interest rate hikes.
Duncan's paper quotes Diewert (2007) and makes no mention that the productivity measuer is TFP, based on a production function and open to the capital debates. I find that really problematic. Beyond that he talks, again citing Diewert, about the next (sic) revision of the system of national accounts. Diewert is from 2007, but Duncan wrote in 2010. The next SNA was in 2008!
Very interesting, even thought I think that the comparison of monetarism and Marxism is exaggerated.
A must-read on the subject is the excelent book of A.Shaikh and E.Tonak (1994, Measuring the Wealth of Nations, Cambridge University Press), and an opposite point of view in Jacques Gouverneur (2005,
The foundations of capitalist economy, free download)
Both of them study the classical issue of unproductive labor, from its most elaborated perspective, ie, that of Marx.
Thank you for your blog
Thanks for the comments. I actually had Tonak and Shaikh's book in mind for arguments about the distinction between productive and non-productive labor. If I recall correctly, they critique previous analyses. If I ever successfully analyze empirical data from National Income and Products Account, I hope to be able to begin, at least, with abstracting from the distinction as far as possible.
The distinction between productive and unproductive labour is one of the key physiocratic influenced ideas of classical economics.
Moving on from the concept of 'class sterile' ideas of only agriculture being productive Adam Smith phrased his definition in terms of expenditure on what today we would call 'non basic' goods and services, in other words there are some forms of work which add to the division of labour promoting economic growth and their are some forms that are purely consumptive. Like his example of menservants.
Marx's addition to the concept was his insight that you cannot tell whether labour is productive or not until the point of sale (valorisation) but he added much confusion to the concept leading to the misunderstanding that services, including potentially vertically integrated services in a manufacturing firm, are not productive. Hence the bizarre national accounts of centrally planned countries - even today china undervalues services in GDP.
Clarity on this point as in so many other comes from Torrens.
He pointed out that providing labour in some way entered into the productivity of what we would now term 'basic' products, profitably produced, it was productive. Hence manufacturing added to national wealth as it could aid the productivity of primary resources (this is only the supply side part of the story on manufacturing). A similar argument can be made for what we would now term 'productive services' Hence services that add to productivity of basics are productive - so the many types of services listed by Gershuny in his classic 'the self service economy' are as he point out not evidence of a shift from manufacturing to services but of division of labour in manufacturing.
Even salespeople are productive in this perspective as they are necessary to valorisation. Accountants etc. in firms are productive, if a firm needs to cut overhead costs it does not imply they are deadweight, rather it shows that the firm is shifting technique to a more productive technique. To be thoroughly austrian for a moment no rational firm will hire additional labour at the margin if it does not create value. Economic conditions can make previously marginal labour a cost and require a shift in technique.
This much neglected and misunderstood concept is desiring a revival in a reconstructed surplus economics, as it is the key relation between economic growth and employment.
Unproductive labour can be critical in providing employment, and in adding to demand, but it is not always sustainable in terms of growth.
This does not mean though that it is easy to unpick what labour is productive and unproductive at any one point in time. It is certainly impossible to do so through national accounts. It can only be assessed at the level of the firm and can change from day to day.
I think that abstracting from the distinction productive-unproductive activities, as Mr.Vienneau wants, could be a good idea, but, as any other abstraction, only if you were discarding irrelevant details to the issue under evaluation. Thus, it's a matter of what is our focus when studying empirical data from national accounts.
Obviously, that classical distinction has two serious handicaps to be considered nowadays:
1. It sounds "old". Clearly, it's not new, but also it receives almost no attention by modern economics (wikipedia says that only marxist economists consider the issue, besides "modern management discussions, economic sociology"). Even worse when the point is mistaken with a difference between goods and services, as Mr.Lainton rightly remarks.
2. More important: is full of subtleties that make it a fiendishly difficult problem.
Anyway, it's a very important issue because, as Gouverneur (2005, see formerly posted comment) explains, we don't know where the economy is going to, until we conceive an accurate device to measure, not only its speed, but also the direction of the path. For example: does the rise of marketing activities constitute a way for increasing national wealth? or is it just a waste, imposing a limit to accumulation?
I think it's worth to discuss about it, so i'll do some remarks to Mr.Lainton post:
-I think Marx didn't wait until realization to measure productive or unproductive labor, but socially necessary labor, i.e. value, being a different concept, though tightly connected: Socially necessary labor is the value of a productive activity. Unproductive activities have no socially necessary labor (even when performed by capitalistically hired wage labor? I'm not sure).
-The point of view of the individual firm, i.e. the micro view, is precisely what we should avoid, because every firm sees its profit as revenue minus costs, and value of output is simply price to be received in exchange. At this level, the problem that we are trying to pose is never revealed, it simply does not exist. So, if i hire accounting services is due to my need of it, and if i can cut this cost, i will. Thus, it cannot be distinguished from energy or raw materials costs. But at macro level it's not so clear that accounting services enjoyied by a producer add anything at all to the value of its product. On the contrary, it seems that the expenditure is a form of consumption of the same revenue (from the same value produced). That this consumption happens along with production activities and not in place and time of leisure, good for doing more money and not for enjoying money, is not important. That is the meaning of "social reproduction and manteninance", as Shaikh & Tonak call it.
-Being so, the level of the firm is not the place to seek unproductive (recall: it's different from usefullness) activities, but national accounts.
I think the fact that the distinction is not very clear (Shaikh&Tonak only designate the categories, but don't give analytical criteria to identify each activity in or out) shouldn't drive us to ignore it, as i think Gouverneur does, when he claim that everything marketable is productive.
Easy or not, we must identify unproductive labor, because we need to purge it to measure the true -and sustainable- performance of our economies.
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