Is Public-Sector Labor ‘Productive’ in a State Money System?

An issue that troubles me in relating Marx to Modern Monetary Theory (MMT) is whether to apply the ‘productive/unproductive labor’ distinction to production that is monetized in a state money. Although I am not especially enamored of the distinction in general, it is particularly its application to public-sector activity in a state money system that strikes me as problematic. I ask the reader to countenance two propositions:

Proposition 1. All public-sector labor in a state money system is productive.

Proposition 2. Proposition 1, if true, would alter none of Marx’s central theoretical conclusions.

If the following argument is mistaken, maybe someone can set me straight, and it will then be clearer how to proceed in future.

As is well known, Marx’s analysis of capitalism distinguishes between ‘productive’ and ‘unproductive’ labor. Only productive labor is said to create surplus value within a capitalist economy. Unproductive labor is taken to be labor that: (i) does not directly create surplus value; and (ii) is not exchanged against variable capital.

Regarding (ii), unproductive labor is said to be exchanged with ‘revenue’ (i.e. income) rather than capital. Revenue comprises wages and profit, including shares that come out of profit in the form of interest and rent.

As Marx put it:

This … establishes absolutely what unproductive labour is. It is labour which is not exchanged with capital, but directly with revenue, that is wages or profits (including of course the various categories of those who share as co-partners in the capitalist profit, such as interest and rent). (Marx, 1969, Theories of Surplus Value, Part 1, Progress Publishers, Moscow, p. 157)

‘Revenue’ is also often regarded as including the wages paid to public-sector workers, which are said to come out of private-sector profit or wages or both. When government spending is thought to be funded by tax revenue, the inclination will be to consider public-sector activity as “exchanged with revenue” and so unproductive in Marx’s sense. Ian Gough, for instance, writes:

The former labour is productive, the latter unproductive. Included in the latter are all state employees, whose services are purchased with revenue whether the original taxes are paid out of wages or out of the various categories of surplus-value. (Gough, 1972, ‘Marx’s Theory of Productive and Unproductive Labour’, New Left Review, p. 51)

Not all Marxists hold to the productive/unproductive distinction. Of those who do, public-sector activity is not always considered entirely unproductive. Some consider public-sector activity to be productive if conducted for profit.

Marx’s definition of unproductive labor suggests that there are two aspects to consider when classifying public-sector labor. First, is the labor “exchanged with capital”? Second, does the labor directly create surplus value?

 
Is Public-Sector Labor Exchanged With Capital?

Capital, in the first instance, is ‘money’ used to acquire means of production and labor power. Here, we can take ‘money’ to refer to cash and commercial bank deposits. In a state money system, the ultimate source of this money is government. The immediate source for private-sector capitalists is private credit creation by commercial banks.

Banks create deposits (money) when they extend loans. But, in a state money system, these deposits are a bank’s promise to supply ‘government money’ in the form of cash and reserves either on demand or after some duration of time. A deposit holder can demand cash and also requires the bank to obtain reserves as necessary to ensure final settlement of purchases made from the account.

In short, if the money that becomes capital can be created by commercial banks, then it can certainly be created by a currency-issuing government, since government is the monopoly provider of all cash and reserves. When government spends on wages and investment goods (by crediting reserve accounts, and therefore creating government money in the form of reserves), the government money it creates is being used to purchase means of production and labor power, and so would seem to fulfill the functions of money capital.

The tendency not to classify as money capital government advances for labor power and means of production may have its origins in a misapplication of gold standard logic to a state money system. There has been a popular notion that a currency-issuing government funds its spending by its taxes or bond issues, whereas in actuality – and to a degree greater than with any other entity (in fact, infinitely so) – such a government has no need of income prior to spending. Since taxes and bonds do not (and logically cannot) fund a currency-issuing government’s spending, public-sector labor is not exchanged against ‘revenue’. From inception, government issues the currency when it spends, which then makes the payment of taxes and purchase of government bonds possible. (For a scholarly treatment of this point, see Stephanie Kelton (Bell), 1998, Can Taxes and Bonds Finance Government Spending? The link is to a working-paper version of an article subsequently published in the Journal of Economic Issues, 2000, vol. 34, pp. 603-20.)

Inside resource limits, government subtracts nothing from economic activity when it creates money through spending to initiate production, just as, again inside resource limits, a commercial bank and investing private firm subtract nothing from economic activity when a deposit is created and the funds used to purchase means of production and labor power. In both cases, production is initiated, rather than anything being drained from the economy.

The government does, of course, subtract from economic activity when tax payments are accepted. So, too, do commercial banks when private firms make loan repayments.

Since, in practice, government generally allows tax revenue to fall short of its spending, it typically subtracts less from the economy than it injects, which leaves more income and profit to be realized within the non-government sector.

 
Does Public-Sector Labor Create Surplus Value?

Compare two hypothetical scenarios. Both scenarios involve the public sector producing exactly the same goods and services, and in the same quantities. Both scenarios entail the same monetary costs of production, amounting in aggregate to government expenditure G. And both scenarios result in the same tax revenue T. The government is assumed to be a currency issuer, implying that the labor it employs is not exchanged against revenue.

Scenario 1. All publicly produced goods and services are produced as commodities and priced individually to return to government the average rate of profit. A set of tax-transfer measures are applied to market incomes to generate personal income distribution PD*.

Scenario 2. All publicly produced goods and services are provided at zero price, with general taxation in place such as to deliver personal income distribution PD*.

The first scenario is a strict application of user pays. The second is at the opposite end of the spectrum.

As already noted, some adherents to the productive/unproductive dichotomy agree that public-sector activity is productive when conducted as commodity production. It seems clear that this is the case in the first scenario. All public-sector employment would be productive, on this basis, when conducted within the context of strict user pays and market provision.

Although the second scenario may appear superficially different, it implies exactly the same aggregate impacts. The same amount G is incurred as costs in production and spent into the economy. The same amount T is generated through taxes and withdrawn from the economy. There is the same personal income distribution PD*. The same goods and services are produced and consumed. The same employment of society’s labor force is involved.

In the first scenario, the labor is deemed productive and, in the second, perhaps, unproductive. If so, total value for the economy as a whole will supposedly be higher in the first scenario than in the second, with presumably different implications for the behavior and viability of capitalism.

But I think it is clear that there is no substantive difference between the two scenarios when it comes to the implications for capitalism or private-sector value creation.

A way to reconcile the two scenarios might be to think of scenario 2 as one in which government supplies a basket of goods and services as a ‘composite commodity’ for which it incurs a cost G and imposes a single price in the form of an annual tax bill on each household. This is somewhat akin to a private corporation that sells a bundle of products for a single price to each customer (for instance, a pay TV company) and in which price discrimination is employed, with different prices charged to different customers (as might occur in a cinema). Just as a cinema charges different prices for adults, pensioners, children and so on, government imposes different taxes according to income and other personal or household characteristics.

Suppose now that, rather than returning to itself the average rate of profit, government instead sets T < G. Clearly, in this case, government will not realize any surplus value, and in fact will incur a net “loss”. This will be true under either of the two scenarios.

But this is only a micro outcome. If the labor in either scenario is deemed productive, then at the macro level any surplus value (and other value) created in the public sector that is not realized in that sector will instead either be realized by firms operating in other parts of the economy or go unrealized (due to private saving). In aggregate, total produced profit, which for Marx must match total produced surplus value, will equal the sum of capitalist private consumption expenditure, private investment, the budget deficit, net exports and worker dissaving, plus any build up of inventories not realized in exchange. This is Kalecki’s profit equation interpreted as applying to produced profit.

In the intermediate case where T = G, government will recover its outlays of constant and variable capital but no surplus value. Surplus value created in the public sector will be competed over by the rest of the economy.

 
Marx’s Key Theoretical Conclusions

Doing away with the productive/unproductive distinction for public-sector production would not seem to affect the status of Marx’s aggregate equalities. Under single-system interpretations, in which the aggregate equalities all hold, it would still be the case that total price equals total value, total surplus value equals total profit, and the average value rate of profit equals the average price rate of profit. The only change is that public-sector employment would contribute to the aggregates involved.

It might appear that Marx’s ‘law of the tendential fall in the rate of profit’ could be jeopardized. But, as far as I can see, the status of this ‘law’ would be unaffected. It would remain valid, as now, under the temporal single-system interpretation (TSSI) of Marx’s theory. This law relates to the composition of capital, not to the composition of output or the sectoral composition of production.

Stated briefly, the law suggests that, over an expansionary phase of capitalist accumulation, there will be a tendency for the technical and organic compositions of capital to rise. This will increase the value composition of capital unless the prices of the elements of constant capital fall sufficiently to offset the effect. Unless the change in the technical and organic compositions of capital is offset by a rise in the rate of surplus value or a reduction in input prices, or some combination of the two, the result will be a lower rate of profit.

If the value composition of capital does rise, a greater proportion of the initial capital outlay will go to constant capital, which creates no new value, and a lesser proportion will go to variable capital, which is the source of new value, causing the ratio of employment to total capital to shrink. For a given rate of surplus value, the rate of profit will fall.

Including government production, in itself, does not affect the status of this law. It is true that if government production, on average, happens to be more labor-intensive than private-sector production, then there will be a one-off reduction in the measure of the composition of capital, which, all else equal, will imply a higher average rate of profit. But this is just a one-off effect.

It is also true that government, as currency issuer, can prop up private-sector profitability by intentionally utilizing more labor-intensive production methods in the public sector and, over time, employing an ever-growing proportion of the workforce in the public sector. But government can prop up private-sector profitability whether or not we apply the productive/unproductive distinction because it has the capacity, even if public-sector activity is deemed to be unproductive, to subsidize the private-sector adoption of labor-intensive techniques.

More to the point, this possibility would not alter the status of Marx’s profit-rate law. What is being described in such a scenario is a gradual failure of capitalism. It would be clear evidence that the maintenance of private profitability requires (i) a deliberate denial of society’s technical capabilities (since superior techniques of production would be avoided to maintain profitability) and (ii) a continual shift in employment from the private to public sectors (or else subsidies for backward production techniques within the private sector). The only ways out, for capitalism, are for government either to allow a collapse in capital values or to engineer a continual increase in the rate of surplus value. But this is precisely what Marx’s law suggests.

One way or the other, if Marx’s law is true, it will make itself felt.

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24 thoughts on “Is Public-Sector Labor ‘Productive’ in a State Money System?

  1. Hi Peter,

    So if I understand this right, a private yacht produced in the olden days by many workers using low productivity techniques would be beneficial for the ‘capitalist’ class because it would produce high levels of surplus value. In the future, though, we can imagine the yacht being produced almost entirely by robotics and therefore producing much lower levels of SV and thereby causing problems for our rulers.

    I don’t think this makes any sense. It seems to me we should scrap the idea that a falling rate of profit has any importance at all. In both cases in the yacht example, the ownership class obtains a yacht without cost and gets to enjoy its fine splendors. Why would it care whether the funds advanced to build it went to worker wages or to buy robots? It’s costless either way. (Whatever it paid will return to it via profit.)

    The problem, I think, is that we’ve reified money (a mere token of power) at the expense of the real motives underlying our socioeconomic system. The issue in this example, in other words, isn’t monetary profit (an intangible thing), but the power to costlessly sail the world’s seas.

    Jim

  2. Hi Jim. Production of the yacht using olden day methods will not help capitalists once productivity has improved. Marx maintained that an hour of living labor of currently average productiveness (i.e. an hour of socially necessary labor) always creates the same value. But value created in the past and accumulated as constant capital devalues over time as productivity improves. So a given employment L will always create the same new value in the period it takes place, but any of the L accumulated as surplus value and carried into the future will gradually lose its value as technology improves.

    At the micro level, a firm that sticks with an inferior production process will lose out to firms that adopt superior production techniques. However, the competitive compulsion to adopt the superior technique will tend to lower the average rate of profit (applying to the economy as a whole) *if* it brings an increase in the value composition of capital.

    You get the same implication by looking at the average rate of profit r in price terms, decomposed into two macro ratios:

    r = P/K = (P/Y)(Y/K) = pq

    Here P is total profit, K the capital stock, Y actual output and income, and p and q the profit share in income and the output-to-capital ratio, respectively.

    For a given profit share p (distribution), a lower q reduces the average rate of profit. That is, a higher capital-to-output ratio reduces r, other factors remaining equal. The effect is offset to the extent that p rises. It can also be offset through devaluation of K.

    The point in the last part of the post, if expressed in these price terms, is that policy resistance to allowing devaluation of K and/or failure to increase the profit share in the event of a rising capital-to-output ratio will reduce the rate of profit unless government intentionally slows the rate of productivity improvement by favoring backward methods of production through, for instance, a higher proportion of labor-intensive employment taking place in the public sector. In effect, government would be adopting the position of “loss maker” (which, as currency issuer, it can do without limit) to prop up profitability in what remained of a shrinking private sector.

    The function of crises, for Marx, is that they cause a collapse in capital values (a devaluation of K) that restores the rate of profit. Marx argued that there is no such thing as a permanent crisis. There is a tendency, in his view, for the rate of profit to fall over an expansionary phase due to an increasing composition of capital, but when crisis hits, if K is permitted by policymakers to devalue, the composition of capital is reduced and the rate of profit revived. A process that could be managed more rationally in a socialist economy (the progressive adoption of better production techniques) occurs only with crises and bubbles in a capitalist economy.

  3. Jim, I think you get at the crux of things with your last paragraph, which includes this sentence:

    The problem, I think, is that we’ve reified money (a mere token of power) at the expense of the real motives underlying our socioeconomic system.

    In a rational society, money would not be the object. But the behavior of capitalists, if Marx and also Keynes are to be believed, is motivated by monetary gain, not ‘real’ objectives. For Marx, money is the necessary form of ‘value’ and capitalists are driven by a systemic imperative to accumulate surplus value (or monetary profit).

    Money and financial considerations should not really be determining anything. But capitalists (as currency users) are financially constrained, and what they do, at least according to Marx and Keynes, is geared toward monetary gain. To the extent there is any semblance of rationality under capitalism, I would say it is due to the prerogatives of the currency issuer, because it is the currency issuer that has the capacity to override considerations of finance, money or monetary profit and base action on ‘real’ objectives.

    For example, I tend to think that a currency-issuing government that persistently raised its level of spending in line with a feasible rate of growth could induce investment from private firms despite a falling rate of profit. As autonomous demand continued to rise, due to the persistent government-spending behavior, rates of utilization would rise as well, and bring a competitive pressure to install new capacity, even if the rate of profit happened to be low, just so long as it did not fall below some minimum level regarded by capitalists as worth competing over. (This policy would still need to be coupled with strong financial regulation or public banking.) For class-interested reasons, though, along the lines of Kalecki’s considerations in his famous paper on the political business cycle, governments do not appear to be inclined to pursue such an approach.

  4. I would argue, though, that our socioeconomic system is extraordinarily rational and therefore not in its essence driven by monetary profit. This wasn’t clear in Marx’s time because of the high level of competition in the 19th century. But today, with the consolidation of large corps and their diversified ownership, it’s a lot easier to see. It’s irrational to chase money for money’s sake, but it’s highly rational to pursue luxury and power over people.

    I also think we exaggerate the difference between the power of the state as currency issuer and the power of the ‘capitalist’ class as the owner of the entire structure. The ownership class as a whole has the power to create currency without limit through the banks it owns AND the power to keep the state from spending to any great degree in the interests of the population. That it has both powers flows automatically from the fact it sits at the top of the structure. The State theory of money wrongly puts the state at the top as if it’s a living agent rather than a series of institutions essentially controlled by the ownership class. Marx would certainly agree that the ‘capitalist’ class is at the top of the pyramid with the state being its mere “executive committee”.

  5. I would add that the fact the class as a whole passionately fights against the government deficits which would provide it with ‘free’ monetary profit is a very strong clue that the prime motive isn’t monetary profit. My view is that it’s simply what it’s been for thousands of years – luxury, the aggressive defense of wealth, and the suppression of the majority.

  6. Interesting thoughts, Jim.

    The reason I put government at the top of the hierarchy is that society ultimately has the capacity to compel government, as its collective agent, to operate in an appropriate manner. Capitalists rely very much on the authority of government to pursue their interests. The moment we say no in sufficiently large numbers is the moment capitalists lose their disproportionate influence over government policy.

    Marx would certainly agree that the ‘capitalist’ class is at the top of the pyramid with the state being its mere “executive committee”.

    Yes, I think he would agree with you.

  7. The great ancient structure of minority power crumbles to the ground as soon as a majority recognizes it has the power to act collectively.

  8. Actually, an aspect of this difference in view may be that I also consider state money to be more general than capitalism. You could have state money in a socialist system.

    Marx is saying you have to overturn capitalism. I agree. But after capitalism is overturned, there will presumably still be government. Is this government still just an executive committee of the elites? If not, then I’m not sure the disagreement goes very deep on this issue. Marx thought social revolution was possible. What I am suggesting (and I think you also) – people taking control of government for the benefit of the entire community – would basically amount to revolution. But, in undertaking its functions, the government may well still employ a state money.

  9. The great ancient structure of minority power crumbles to the ground as soon as a majority recognizes it has the power to act collectively.

    Yes, agreed.

  10. I view money as a token of the power relationship within a socioeconomic system. Monetary wealth is but a token of the power of the minority over the majority. The dynamics of money, for it to have any meaning at all, must parallel that of the dynamics of power.

    If the minority is no longer in power and the majority rules, then the state would by definition serve in the interest of the majority and not be an executive committee of the elites. State money would then be a token of the power of the majority and its collective interest.

    I most certainly agree that if people were able to take control over the government and use it to spend in its collective interests, it would be a revolution. The core idea of MMT is revolutionary, although it’s hidden behind the cloak of money.

  11. Really interesting! From my pov I see the human personality (physical, emotional, mental) gradually coming under control of the conscious entity that owns it, and once sufficiently developed and integrated, being used aggressively to dominate. Alexander the Great (who left two empty hands sticking out of the grave) stripped that back to its core. IOW, the humans who want to dominate aren’t all that bright! There are easier and much more successful and profound ways for a human being to be fulfilled; involves feeding the good wolf and not the bad. I wonder in 2017 will things hit a wall?

  12. Yes, I think craving power over others or wanting more and more material possessions when many have so little, though it may take a kind of “intelligence” to achieve, does seem to be a sign of stupidity, really. Either that, or a form of mental illness …

  13. It’s desire Peter, fixated on some goal with all aspects of the personality honed to achieve it. The consciousness within slave to the desire, ‘thinking’ the goal is worthy. Almost Pavlovian.

    What seems to happen is once the evolution of the consciousness has reached a stage where an integrated personality has evolved (dominant, aggressive, selfish, highly egoistic), a new ‘vibration’ or aspect of energy fires up, emerging very slowly from within (like dawn, sunrise). This new energy slowly begins to transform the personality into what we admire as a humanitarian. I know this view is outside the bounds of traditional psychology, but it is the reality as far as I can see. The presence of this new energy is called ‘the heart’, popularly. Evolution in this view, is the evolution of consciousness (synonym Energy). So the neanderthals still rule (on the outside), but their night is becoming more and more transparent. A 200,000 year old journey for the human being, to find the beautiful Self!

    I like Kali – with great joy she dances on their heads.

    Best wishes to you and all your projects in 2017 …!

  14. Marx’s definition of unproductive labor suggests that there are two aspects to consider when classifying public-sector labor. First, is the labor “exchanged with capital”? Second, does the labor directly create surplus value?

    I approach these questions in a different manner. It may not be better, but it works for me.

    Imagine a large, joint stock corporation, whose shares are traded in the stock market. Joe sells (gifts, or transfers them in a divorce settlement, or whatever) his shares to Mary.

    Does this affect the corporation’s profitability?

    Probably not. A shareholder, as shareholder, does nothing for the firm; the manager does on his/her behalf. Provided the manager’s interests are carefully aligned with the owners’, whether the shareholder is called Joe, Mary, Chris, Jim or Judas, whether the shareholder is male or female, black or white, national or foreign, Christian or atheist, young or old, it shouldn’t make any difference.

    The same should apply if the new owner is called the Commonwealth of Australia: the Australian State.

    This, it seems to me, would explain why state capitalism is a possibility: the mere transference in the ownership of the means of production does not guarantee socialism. The firm’s management must be aligned with the interests of the owner. I am not familiar with Trotsky’s writings, but I think this is what his arguments boil down to.

    And, I think, it would additionally offer an obvious, although perhaps not fully satisfactory, answer to the so-called socialist calculation problem.

  15. “All public-sector labor in a state money system is productive.”

    The problem with this proposition is the word “productive”. That word is ambiguous and may assume different meanings depending on the theory you are studying. There is a difference in meaning when comparing Modern Monetary Theory to what you say is Marx’s theory.

    In MMT, a public-sector labour in a state money system is productive if it helps to achieve the public purpose. If the public-sector labour is not employed to achieve the public purpose, then it is not productive.

    If a lot of public servants are employing a lot of labour to build a long and expensive road that links nowhere to nowhere, it will be a wasted effort that will not contribute to the public purpose. So it’s unproductive. But if we are talking about a road that links a big important city to an important port, then we are talking about a more productive labour, because it contributes to the public purpose.

    The problem with Surplus Value is the way you measure it. You need to compare production costs and final prices to consumer. But in the public sector, there is not always a final price to consumers. It is actually common for government institutions to work permanently in economic loss, so, in the economic sense, it is not creating value, but destructing it. But the economic loss may be related to social profit, and that’s way these institutions keep running their activities.

  16. @André

    I beg to differ. There is no ambiguity. In this post the meaning of productive labour is:

    As is well known, Marx’s analysis of capitalism distinguishes between ‘productive’ and ‘unproductive’ labor. Only productive labor is said to create surplus value within a capitalist economy.

    And Peter further elaborated it.

    That’s not a capricious definition nor Peter proposes it just because Marx did. Before Marx adopted it, it already had a good pedigree, starting with the French Physiocrats. Adam Smith employed the same distinction: productive versus unproductive labour. So did Ricardo, Malthus and virtually every single political economist, until Marshall.

    You are right, however, in your claim that other, more recent, schools of economic thought re-define production and productivity to mean different things.

    In this context, whatever the ambiguity, it was created by those more recent schools of economic thought.

    Personally, I think just being aware of what I explained here should be more than enough to prevent any confusion and I hope you’ll agree with me on that.

    However, if your doubts persist I suggest the right people to address that observation would be the members of the more recent schools of economic thought (including MMT) using production and productivity in different ways.

    For one, it is their re-definitions that create your confusion. It’s up to them to solve that problem.

    For another, it’s a matter of respect. In a manner of speaking: Marx and the elders got there first. It’s not for the newcomers, however meritorious, to kick their elders out.

  17. @Magpie

    “You are right, however, in your claim that other, more recent, schools of economic thought re-define production and productivity to mean different things.”

    Yes, more recent schools of economic thought redefined the term “efficiency” because they believe that the traditional definition is not useful. It’s to narrow to be correctly employed in economic analysis.

    Bill Mitchell wrote about this. I will not put the URL here because I don’t know if this blog allows external URLs in the comments, but the blog entry is called “Towards a progressive concept of efficiency – Part 2”.

    Bill writes “By placing Society rather than private corporations at the centre of our framework, progressives have a broader understanding of costs and benefits, which then conditions how we assess the ‘efficiency’ of an activity”.

    About the “elders”…

    “For another, it’s a matter of respect. In a manner of speaking: Marx and the elders got there first. It’s not for the newcomers, however meritorious, to kick their elders out.”

    Well, isn’t this an “argument from authority fallacy”? I mean, we should respect the elders, but that doesn’t mean they theories are perfect and infallible. If we want to respect the elders, let’s forget about Einstein’s meritorious relativity theories, because he is in clear contradiction to a very important elder: Newton.

    I’m not saying that I’m sure that the MMT view of efficiency is the better one. It may not even be consensual among MMTers. But I guess to say that we must not challenge the elders is unreasonable…

  18. Magpie and André: Thank you very much for your thoughts. They are helpful to me in pondering different aspects of the issue.

    As far as I can see, Marx and MMT are in agreement that evaluating social benefit by whether it creates ‘surplus value’ is overly narrow and not a good way to do it. Marx is saying, however, that it is capitalism’s primary way. So, to understand capitalist behavior, it is useful to distinguish ‘value’ and ‘surplus value’, on the one hand, from ‘use value’ or some broader measure of individual or social benefit on the other.

    But, in this, Marx is not so different from PKE or MMT. When Keynes-influenced economists focus on a monetary production economy in which monetary profit is the driver of private-sector firm behavior, they essentially are doing what Marx did. Neoclassicals, also, when they distinguish private cost and benefit from social cost and benefit, make a similar distinction in which private-sector profit maximizers fail to pursue social benefit or recognize the full social cost whenever there are externalities.

    The present post concerns the applicability of Marx’s productive/unproductive distinction to public-sector activity in a state-money system. If we take Ian Gough’s position as the default one, the public sector does not *directly* create surplus value. There is no suggestion, in his argument, that the public sector is of no social benefit. But there is an implication that public-sector activity, though often necessary (to capitalists), is a drag on surplus-value creation. Whatever labor is engaged in ‘unproductive’ employment will be unavailable for ‘productive’ employment.

    It is this idea that I consider in the post. Unproductive labor is said to be exchanged with ‘revenue’ (meaning income) rather than with variable capital. I wonder about the applicability of this in a state money system, since it does not seem correct to think of public-sector labor as exchanged with revenue.

    As Magpie’s first comment above points out, the question seems to come down to the significance (to the creation of surplus value) of ownership. In the post, a scenario is imagined in which the government produces all its output as commodities and prices them so as to return to itself the average rate of profit. If it did this (not a good idea, of course, for the economy as a whole), it would generate revenue in excess of its spending. We could call this profit, though it is not privately owned. And, of course, it is useless, because it gives the government no greater financial capacity to spend or initiate production in the future. Alternatively, we could exclude it from profit on the grounds that it is not privately owned and, in reality, is income that is drained from the economy.

    Irrespective of how we categorize the government surplus, would it make sense in this scenario to consider the public sector as unproductive in Marx’s sense?

    If we say, “no”, and deem the public-sector activity in this scenario to be productive, then it seems to me that it must also be deemed productive when the government, instead, sets prices (or general taxes) such as to run a deficit. The only difference, here, would be that surplus value (and some value) created in the public sector would not be realized by the government but instead be left for realization in the private sector. For Marx, the way in which total surplus value is distributed does not alter the actual amount that has been created in production. If the public-sector labor is deemed productive, then the public sector, rather than being a drain on surplus-value creation, would be contributing directly to it.

    But maybe we should answer, “yes”. (?)

    Anyway, this is the main point I have been pondering.

  19. BTW André, yes, feel free to provide external links. If there are one or two, the comment will go through immediately. The spam filter will hold back a comment if it has three or more links, so there can be a delay until I see the comment in those cases. With three or four links, you could avoid the spam filter by breaking the comment into two parts.

  20. Peter,

    How does it all work if you aggregate accumulation solely in currency with no reward for holding it (i.e. no bonds).

    ISTM that capitalists under-consume in real terms and that real terms ‘surplus’ can be considered as simply the wages of capitalists, much as interest is the wages of bankers.

    Once you get to that point then the real stuff is dished out appropriately (or at least you can get it to be dished out appropriately) and you are just left with a ‘score’ in monetary terms to show who ‘won’ the game of accumulation.

    For me the ‘public sector’ productive element is the bit that is needed to pay those who created the infrastructure but are no longer involved in production – i.e. those on a pension. Just the same as in the private sector.

  21. Hi Neil. Thanks for chiming in.

    Marx sees surplus value (whether interest, profit on enterprise or rent) as unpaid labor. He argues that this income is received without any labor being performed in return. But this does not mean that people (including managers and CEOs) working in the FIRE sector don’t perform (in some cases highly complex) labor. Part of a CEO’s income will be remuneration for labor, and part will be considered unearned. Although a Marxist who considers public-sector labor to be unproductive is also likely to consider FIRE-sector labor unproductive, labor is still performed and the person considered entitled to a wage.

    I think if the argument about public-sector labor countenanced in the post is accepted, then a similar line of reasoning could be applied to the labor performed in the FIRE sector. We know that bank loans create deposits, so labor in the FIRE sector that is exchanged against borrowed funds will not be exchanged against ‘revenue’ (at least in the sense that this is claimed for public-sector labor in the post). And retained earnings are also capital. So, it seems to me that if public-sector labor is considered productive, then FIRE-sector labor would be productive, too.

    I should reiterate, at this point, that my whole argument might be wrong, from a Marxist perspective.

  22. @Andre

    Thanks for the reply. I don’t think I wrote the word “infallible” anywhere 🙂 and if my comment was interpreted that away then either I wasn’t clear or you are reading things I didn’t write.

    Maybe an example can help. Austrians re-define inflation so that an increase in the stock of money constitutes inflation, whether prices increase or not. Is an appeal to someone’s infallible authority to complain about that?

    You, like, the Austrians, are re-defining one word which others employed without ambiguity and introducing yourself the ambiguity about which you complain.

    I don’t think there is any fallacy there.

  23. @Magpie

    That was a good example.

    As peterc himself said, “The present post concerns the applicability of Marx’s productive/unproductive distinction to public-sector activity in a state-money system”.

    So I understood it wrong.

    But nonetheless, as I’m already here, I would like to put that I believe the productive/unproductive definition of Marx and most economic theories is too focused on the private market and isn’t appropriate to the government sector.

    So maybe a more fundamental question would be whether Marx’s definition is applicable to the government sector, and not whether public-sector labor is productive/unproductive.

    But that’s not the focus of the present post, sorry! hehe

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