Markets, Productivity, and Happiness in a Historical Perspective

The Productivity Controversy in Classical Political Economy and its Consequences for the Understanding of Services

Kraemer Hagen, Karlsruhe University of Applied Sciences

The view, according to which services do not contribute anything to value creation but may even consume value created in the industrial sector, arose in particular in the course of the so-called productivity controversy in classical political economy, in which the Smithian concept of productive and unproductive labor was debated. This paper argues that the classification of services as “unproductive” activities can be traced back to the classification of services as unproductive labor. Even though services as such did not play a major role in classical political economy, there is a large overlap between of the notion of unproductive labor and what is understood by services. The paper discusses Jean-Baptiste Say, John Stuart Mill, and Nassau William Senior in more detail: three representatives of the view that is critical of Smith’s concept of unproductive labor and its application to services. Finally, the paper argues that the productivity controversy of classical political economy has left visible traces for the modern understanding of services in theory and practice.


Keywords: Productive und unproductive labor, Productivity in the history of economic thought, Economic significance of services

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