 In the last segment, we looked at commercial profit and industrial profit. Commercial profit is quite different from industrial profit because it is an example of profit created by unproductive activities. Now, let us look a little more carefully at this important distinction between productive and unproductive labour, a distinction that runs right through classical political economy starting with Adam Smith. Now, to understand the distinction between productive and unproductive labour, let us step back a little and start by understanding the distinction between productive and unproductive activities. So, let us start by looking at all kinds of activities that are needed for social production. We can broadly divide them into two big categories production and non-production. What is the difference? Production creates use values on a net basis. So, it uses use values, but it creates more use values than it uses. So, that is the broad category of production. All other activities we can put together under one big category called non-production. And the key distinction is that non-production uses of use values without creating any new use values on a net basis. Now, this distinction is more or less accepted across all disciplines of economics, the distinction between production and non-production. What differentiates the Marxian tradition from the neoclassical or even the Keynesian tradition is how to understand the distinctions between what we mean by non-production. So, let us look at four broad categories which can together comprise all the activities that go to creating and ensuring social production. So, let me draw these four boxes. So, the first box is production. As I said production is activities which creates use values on a net basis. Everything else comes under the category of non-production, but we can differentiate the non-production category into three more subcategories. The first is what we can call distribution. So, distribution are all the activities related to what we have earlier called circulation, meaning the transformation of the form of value from money to commodity from commodity to money. What happens in the activities of distribution is merely a transfer of ownership of already existing use values from one economic actor to another. What about the other two boxes? Well, one of them is what we can call social maintenance. Social maintenance are all the activities that are required to ensure the reproduction of the social system of society as a whole. So, what would come here? Well, all the activities of the state, the law and order machinery, the courts, the judiciary, all the police, the military, all of which together ensure that the social system is in existence. The fourth box is what we can call personal consumption. So, personal consumption are all the activities geared towards the maintenance of individuals. So, when we consume food, clothing, shelter, healthcare, all of those would be part of personal consumption and that is necessary to maintain the individual to reproduce the individual over time. Now, these broad four categories are divided into broader categories of production and consumption in two different ways. On this side, we have the neoclassical understanding. And on this side, we have the Marxian understanding. For the neoclassical production, distribution and social maintenance, all of these together comprise total production. So, for instance, a neoclassical would understand any activity involved in trade or any activity undertaken by the state, as long or any activity undertaken by some other economic agent which is required for social maintenance. As long as the output of that activity can be bought and sold in the market for a price, the neoclassical perspective would consider that as a form of production. And therefore, from the neoclassical perspective, production, distribution and social maintenance, all of that would be part of what they broadly understand as production. And total consumption would just be what we have called personal consumption. On the other hand, the Marxian perspective understands distribution and social maintenance not as production. Because from the Marxian perspective, these kinds of activities do not lead to the creation of use values on a net basis. On the other hand, they use up use values. The people who are involved in those activities, they need to eat, they need to have to build buildings. So, all the material and labour that goes to supporting these activities from the Marxian perspective amounts to a net use up of the resources rather than creating new resources. So, from the Marxian perspective, these two together would be called social consumption. And the sum total of social consumption and personal consumption would together be total consumption in the Marxian perspective. Total consumption or non-production, what we have called non-production. And therefore, from the Marxian perspective, total production is just what we have called production. Of course, as we have seen last time, production includes not only the physical act of creating use values, but also in the case when it needs to be transported and stored all those activities together. So, production here is broadly understood as the physical act of production, transportation, storage, all the activities necessary to transport the use value from its site of production to its site of consumption. So, this is the broad distinction between on the one hand the neoclassical perspective and the Marxian perspective. Now, let us pay a little bit of attention to the use value that we are thinking of. So, as I said, production results in the net creation of use values. What use values are we talking about? When there can be two types of use values. One is what economics called goods. Goods are use values which are material things where the labor used to create that use value is embodied in a physical object, but that is not the only kind of use values. There are other kinds of use values which today we call services. What is the distinction between goods and services? The key distinction between goods and services is that the physical location of the production of a service is also the location of its consumption. When a service is produced, it is automatically at that time that it is also consumed. Since it is not embodied in a physical object, it cannot be moved around. But that does not mean that services should not be considered use values. Services create useful effects. So, think of a barber who is cutting your hair. That is a service as long as the barber is producing that service to be sold in the market for a price. That useful effect whereby the shape of your hair changes and becomes what you want it to be is pretty much a use value just like a car that is produced in a factory. So, we should not think that use values are only goods. Use values can be goods or services. So, no matter whether it is goods or services, when we are thinking of activities which create use values on a net basis, all those activities should be understood as production. Now, let us think a little more about services because it is true that it is a little more complicated. When we are thinking of good production, there can hardly be ever any doubt whether it is production or not because a physical output emerges. We can see that. So, that would be a case of production. Services certainly can be of two types. One category of service would be counted under the category of production and another category of service would be counted under the category of non-production. So, let us look at some of these examples of services that should be counted as production of new use values and those that should be counted as non-production. What are some of the important production activities as far as services go? Well, we have already seen some of these earlier. Transportation services, storage services, all of those services which are related to moving a use value, physical use value of good from its location of production to its location of consumption would be an example of a service which is production. What is that service creating? It is creating the useful effect of changing the location of the good under consideration. So, if a car has been produced in Detroit and it must be driven in Boston, it needs to be transported from Detroit to Boston. So, all the activities involved in transporting and changing the physical location of the car would be counted as production services. There are others, education, healthcare, entertainment. All of these are examples of services that are creating new use values. Now, let us look at some examples of non-production services. Those activities which are related to trade, by trade I mean the pure buying and selling of commodities. So, here in trade what happens is a commodity which is already being produced is just handed over to somebody else for a sum of money. Those activities cannot create value, cannot create new useful effects and therefore those would be counted under the category of non-production. Advertising. Advertising are the set of activities which are geared towards bringing in consumers into the market and enticing them to buy certain things. Those activities do not create any new commodity or use value. As we have seen all the activities related to law and order, so the police, the judiciary, the whole state functionaries, all of those would fall under the category of non-production. Financial and banking services, real estate services, all of these are not creating any new values. They are not creating any new use values and therefore they would be part of the non-production category. So, these are some of the distinctions between production and non-production as far as services go. The main thing to keep in mind is that all services are not non-productive activity. There are certain services which do create a commodity, do create a use value and those would be counted under the category of production. Now, from the Marxian perspective the first distinction to make which we have already made is the distinction between production and non-production. So, all activities that are outside the domain of production cannot be productive because they do not create use values. If they do not create use values, they cannot create value. If they cannot create value, they cannot create surplus value. So, that is the first distinction, but then we must look within the domain of production to understand the relations of production under which the activity goes on to zero into the category of productive and unproductive labour. So, let us say that we have already made the distinction between production and non-production. Now, we take all the activities we have counted under the category of production. Now, what we do? We look at the relations of production under which that production activity is organized and here we can think of three different ways of organizing the production or three different relations of production. First is when the labour involved creates use values, but it does not create value and it does not create surplus value. What would be an example? Well, let us say I am working in my kitchen garden to produce vegetables. In that case, my labour is certainly creating a use value, the vegetable which I will consume, but it is not intended for sale. So, therefore, it is not a commodity. Therefore, it does not have any value. In this specific sense in which we have used the word value within the context of political economy. Since it does not have value, it also does not have surplus value. So, this would be one part of activity that we would separate out. The second kind of activity is the second type of production relations that we need to see within the domain of production is where the labour creates use value and it also creates value, but it does not create surplus value. What is an example of such activities? So, think of a peasant who owns the plot of land on which he grows the rice. Most of the rice he grows for the market. In that case, the rice is certainly a use value. The rice is intended for sale. Therefore, it is a commodity. Therefore, the labour that has gone into its adds value in this specific political economy sense, but there is no wage labour involved. There is no worker and capitalist. The peasant owns the means of production, the plot of land, the tools and implements that he uses. And therefore, what he earns would be revenue, but it cannot be broken up into wages and profits. So, therefore, this is an example of a labour which creates use value and value, but no surplus value. And the third and final category of relations under which production is organised is the wage labour relation where there is a capitalist who owns the means of production, who hires workers who purchases the labour power of workers to produce the commodities. In that case, the labour would create use value, it would create value and it would also create surplus value. For Marx, only that labour which creates surplus value is understood as productive labour. So, only that labour which creates surplus value is to be understood as productive labour. Now, let us pause and think a little bit. What Marx is trying to emphasise is that this notion of productive and unproductive labour cannot be used ahistorically. The category of productive labour can only be meaningfully used when it is circumscribed and used for a particular mode of production. So, from the perspective of a capitalist system, only that labour which creates surplus value is productive because we are looking at the notion of productive and unproductive labour from within the perspective of a capitalist system. The surplus value creates the means for making new investment, for increasing the scale of production, for financing the research in technology and therefore within the domain of a capitalist system it is surplus value which will lead to the system becoming more productive. And that is why Marx wants to think of productive labour in capitalism as only that labour which creates surplus value. So, this was a kind of detour from the story from the analysis that we have been doing, but nonetheless it is an important point to keep in mind. The distinction between productive and unproductive activities and the further distinction between productive and unproductive labour. The commercial profit that we have seen is an example of labour that is involved in an activity which does not create value because it is just pure trade. And therefore the incomes of every person involved in trading activity comes out of the surplus value created by productive labour elsewhere in the economy. That is why commercial profit is an example of a profit that is earned by a group of capitalists without having created that surplus value. Next we are going to look at another category of the surplus value which takes the form of interest.