Productive vs. Unproductive Labor — The Wealth of Nations

Smith opens Book Two's third chapter with a distinction that is economic, not moral. There is one sort of labour which adds to the value of the subject upon which it is bestowed; there is another which has no such effect. The former, as it produces a value, may be called productive; the latter, unproductive labour. Some French authors use the words differently; Smith promises to address that later. For now the test is simple: does the work leave behind something vendible that can put an equal quantity of labour into motion again?

The manufacturer illustrates productive labour. His wages are advanced by his master, yet he in reality costs him no expense, the value of those wages being generally restored, together with a profit, in the improved value of the subject upon which his labour is bestowed. The menial servant is the contrast. His maintenance never is restored. A man grows rich by employing a multitude of manufacturers; he grows poor by maintaining a multitude of menial servants. Both sorts of labour have value and deserve reward; Smith is not ranking human dignity. He is tracking whether labour fixes itself in a durable commodity or perishes in the instant of performance.

Productive labour, as it were, stocks and stores up a quantity of labour in a subject that lasts after the work is done. The price of that subject can afterwards, if necessary, put into motion a quantity of labour equal to that which had originally produced it. Unproductive labour leaves no trace of value for which an equal quantity of service could afterwards be procured. The servant's table-setting vanishes when the meal ends; the weaver's cloth remains on the shelf. That accounting difference, not the worker's worth as a person, is what Smith builds national growth upon.

The whole annual produce of land and labour is finite. According as a smaller or greater proportion of it is in any one year employed in maintaining unproductive hands, the more or the less will remain for the productive, and the next year's produce will be greater or smaller accordingly. When produce first comes from the ground or from productive hands, it naturally divides into two parts. One replaces a capital: provisions, materials, and finished work withdrawn from stock. The other constitutes revenue as profit or rent. That part which replaces a capital never is immediately employed to maintain any but productive hands. It pays the wages of productive labour only.

Revenue, by contrast, may maintain indifferently either productive or unproductive hands. Whatever part of his stock a man employs as a capital, he always expects it to be replaced to him with a profit. He employs it, therefore, in maintaining productive hands only. Whenever he employs any part of it in maintaining unproductive hands of any kind, that part is from that moment withdrawn from his capital, and placed in his stock reserved for immediate consumption. Smith's framework therefore mirrors personal finance at national scale: capital feeds value-adding employment; revenue may feed either kind, and every choice to hire a footman instead of a weaver shifts stock from replacement to consumption.

Readers should hold two ideas at once. Unproductive labour can be honourable, useful, and necessary; Smith says so explicitly about public servants. Yet only productive labour enlarges the fund that pays next year's workers. The chapter's opening definition is the lens for everything that follows about servants, sovereigns, parsimony, and the fate of nations.