The classical Marxian definitions are:

Productive labour is labour power within the sphere of production which is exchanged with capital and which is the direct source of surplus value.

Unproductive labour is labour power within the sphere of exchange (circulation) which is exchanged with revenue, (i.e. wages and profits) and which is not a source of surplus value.

The mainstream of Marxian political economy distinguishes between these spheres of economic activity:

Industrial capital produces commodities (goods or services) and in doing so creates surplus value (profits), the source of which is the workers employed by industrial capital.

Commercial capital helps realise surplus value by distributing the commodities produced by industrial capital. Industrial capital sells its commodities to commercial capital at less than their value which are then sold at their full value, the difference being the source of the profits of capitalists and the wages of workers in the commercial sphere.

Bank capital lends industrial capital and commercial capital money in return for interest. The interest comes from a share of the profits of industrial and commercial capitalists. Banks also lend workers money on which interest is charged and so part of their profits are a share of workers’ wages. Bank workers are paid out of these two sources of interest.

Public administration consists of various State activities such as the military, social security benefits, health care, education, etc.. These are financed from the taxes on profits and wages. The wages of workers in this sphere come from these same sources.

 However there are some problems with this analysis:

1. Industrial capital firms employ both productive and unproductive labourers. The productive labourers are those directly engaged in the production of commodities while the unproductive labourers are those working in an indirect supporting role. For example in car production the workers actually engaged on the production line together with those maintaining and repairing the production machinery and those directly organising the production line workers are productive labourers. The administrative and secretarial personnel working in the offices are unproductive labourers even though their services are necessary for the car production plant to operate.

On what basis is it possible to make this distinction? If, with given forces of production, we imagine a situation where the demand for cars is increasing, then profits will be increased by employing more production line workers so as to produce and sell more cars and thus increase the volume of revenue. Employing more office staff would simply increase costs without at the same time increasing revenue. It may be necessary to take on more administrative personnel to calculate the wages, etc. of the increased number of production line workers but if at all possible this will be avoided because it would reduce the level of profitability. Thus the wages of unproductive labourers might more logically be regarded as part of constant capital rather than as part of variable capital because they create no new value in the course of production. The same distinction would apply to a massage parlour. Employing more masseuses to meet increased customer demand would increase profits but employing more cleaners would not.

2. It is not altogether clear as to why all employees of commercial capital are viewed as unproductive. Goods and services can only have exchange- value if they have use-value as well. Marx was clear that workers engaged in transportation are productive labourers because commodities can only be sold if they are taken to a location where someone is prepared to purchase them. Similarly the staff in a retail store make the goods available to customers in a form that is accessible to the latter. If the goods were left unpacked in the storeroom not many would be sold. Thus are not at least some of the employees of commercial capital productive labourers? They do in fact create part of the value of the commodities they handle and are a source of surplus value to their employers. Unpacking goods upon arrival at a shop is just as essential for them to have use-value and thus exchange-value as was packing them up in the factory for safe transportation.

Within the sphere of commercial capital the same considerations apply in distinguishing between productive and unproductive labour as are made above for industrial capital. An increase in the volume of customer demand means employing more staff unpacking, storing and selling the commodities but the volume of profits will increase as well. However employing more administrative personnel would simply increase costs and so this would be kept to a minimum. It rather looks as if the distinction between industrial and commercial capital is somewhat tenuous. Both employ productive and unproductive labour. The distinction between these two types of capital is perhaps based on a distinction between the production of goods on the one hand and services on the other. However Marx is quite emphatic that this distinction is nothing to do with the production of surplus value. Self-employed craftsmen produce material goods which are commodities but no surplus value is created and so this is unproductive labour. The services of a woman employed to engage in sexy talk with customers over the phone have no enduring physical form and yet are a source of surplus value to her employer and thus she is a productive labourer.

3. Bank capital is different from industrial and commercial capital in the respect that it does not create any new value but simply redistributes value already created. If an industrial or commercial capitalist borrows money for capital investment (both constant and variable) from a bank then he must pay it back with interest and the only source of this interest must be a share of his profits. Similarly if a worker borrows money from a bank at interest then the repayments must come out of his wages. Both the profits of the owners of the bank and the wages of its employees come from the variable capital and surplus value of industrial and commercial capital, i.e. are part of the value that capitalists and workers would retain if they had no need to borrow.

As far as the internal operations of banks and other financial institutions such as insurance companies are concerned, the same considerations apply as in any other capitalist enterprise. The owners will wish to minimise expenditure on both human and non-human costs so as to maximise their profits. As with industrial and commercial capital we can distinguish between those employees whose activities directly generate revenue and those who have supporting roles which are not a direct source of revenue. For example, if a bank’s dealings in the foreign exchange market have the potential for growth then employing more foreign exchange dealers will increase the volume of profits. If these additional employees also mean that more administrative personnel have to be taken on to deal with employment costs then their wages are simply a cost, do not provide any new profit and taking on these new employees, unlike the new foreign exchange dealers, will be avoided if at all possible.

While banks and other financial institutions make money profits by means of employing people it would not, paradoxically, be true to say that they extract surplus value from these employees. Rather the bank employees are used to expropriate a cut of the surplus value already being extracted by industrial and commercial capitalists from their employees as well as expropriating a cut of workers’ wages. As already pointed out, the wages of the bank employees also come from these same sources. Of course there will be struggle between the bank owners and their employees over just what shares of the bank’s revenue, (apart from that spent on constant capital), are received as profits and wages respectively. Furthermore, the bank owners will use exactly the same methods as do other capitalist employers to get the maximum work possible out of their employees for the minimum possible payment. In recent years the application of the new information technology together with other measures has resulted in massive reductions in the number of bank employees, despite the growing volume of business, together with considerable deskilling and reductions in earnings. It is certainly true to say that bank employees are oppressed, just like any other group of workers under capitalism, but it is not technically correct to say that they are exploited because they themselves are not the actual source of the surplus value received by the banks’ owners. Rather their employment allows the bank’s owners to receive a cut of the surplus value extracted elsewhere.

This peculiar position of employees in financial institutions explains how it is possible for a firm in this field with a relatively small number of employees, e.g. a merchant bank, to make vast profits. The surplus value is not being extracted from the bank’s employees but from a potentially unlimited number of employees of other companies. Thus it is that some bank employees handling operations in various financial markets can receive enormous bonuses vastly in excess of their basic salaries. They, as well as their employers, are recipients of surplus value extracted elsewhere. Given that all bank employees, even the cleaners, are living off surplus value, does this mean that they have a vested economic interest in the continuation of capitalism in a way that other employees, be they productive or unproductive, do not have? Certainly the ones on very high salaries have an objective economic interest in the system continuing. However the great majority of bank employees, who are being proletarianised, do not have an objective economic interest in the perpetuation of capitalism. The growing monopolisation of banking and finance has been accompanied by increasingly sharp competition for business among the rival firms. The days of easy pickings when customers with positive balances in their accounts actually paid the bank service charges while at the same time the bank was lending out the customers’ money are over. Growing competition among the banks for both business and personal customers means that interest rates charged are reducing and rates paid increasing. This means that if banks are to maintain their profit rates then they have to try to employ the minimum number of staff on worse conditions and less pay. Thus the great majority of bank employees have the same general interest as all other workers do in abolishing capitalism.

4. In the twentieth century there have been a growing number of people employed in various types of public administration. In examining State employment a clear distinction should be made between employees in State-owned industrial capital, the former nationalised industries such as telecommunications, gas and electricity supply, etc., and employees in various types of public services such as civil servants, teachers, doctors and nurses, etc.. Those who were employed by State-owned industrial capital were in exactly the same economic position as those employed by privately-owned industrial capital. Some were productive labourers and some were not. The enterprises in which they worked were run according to the same principles and practices, e.g. aiming for profit maximisation, as privately-owned industrial capitalist firms. In so far as any of these industries were subsidised by the State, e.g. coal mining, this did not alter the fact that the objective position of some of their employees was that of productive labourers. When such industries were running at a loss made up by State subsidy they were in effect producing negative surplus value, something which happens in the privately-owned industrial sphere as well. The loss was covered by taxes on profits and wages of owners and workers in other industries. There were periods when such a state of affairs suited the convenience of the capitalist class as a whole as with the railways. (The same can be the case with privately-owned enterprises where the State provides subsidies, e.g. the privatised railway companies.) For some types of industrial activity essential for the functioning of a modern capitalist economy the bourgeoisie were unable to raise sufficient capital and run them on a profitable basis. Thus the State had to take on this task by practising state capitalism. When most of these industries became profitable enterprises again they were returned into the hands of private owners.

One large category of employees within the sphere of public administration are those concerned with producing and maintaining labour power, i.e. doctors, nurses, teachers, social workers, social security administrators, etc.. It is sometimes claimed, e.g. by Peter Howell, that these people are productive labourers because they have a direct impact on the creation and performance of the people who actually are productive labourers. This is a fallacy because these State employees are not themselves a direct source of surplus value. Their labour power is not exchanged against capital but against revenue from taxes on profits and wages. The fact that these employees do have a role in producing and maintaining the source of surplus value, i.e. living labour power, does not alter their objective position as unproductive labourers.

A growing problem for the capitalist state has been to raise sufficient revenue from taxing profits and wages to finance the payment of the massively increased number of unproductive state employees. This has been especially the case in the current economic depression when state spending on unemployment benefit has greatly increased while at the same time the rate of profit has been falling. One stratagem to help capitalism survive has been to shift the burden of taxation away from recipients of surplus value to employees. Another has been to economise on spending on social security and public services. In addition the sale of State-owned industrial capital has provided revenue which has been used for current State spending. However by themselves these measures have not been sufficient to bridge the gap between State income and expenditure.

A further measure to try to contain State expenditure is to run public services along the same lines as private capitalist enterprises in the hope that this will result in cost-savings. This system of “new public management”, as it is sometimes called, has been taken furthest in the National Health Service and tertiary education. The basic idea is to split up these services into autonomous units which have to be run like “businesses”, “compete” with each other and give “value for money”. The great bulk of their finance still comes directly from the State although hospitals, colleges and universities are free to generate income from other sources. The state funding systems for these services have been operating on a basis whereby the amount of money provided is directly related to numbers of patients treated and students taught and has been declining on a real per capita basis. This is supposed to encourage “efficiency” and “quality” in the provision of services.

One important consequence of the introduction of “enterprise culture” into these public services has been to commodify them. Previously the task of the health and tertiary education services was to maximise their provision of use-values within the limits imposed by their current levels of funding. The aim of health authorities, colleges and universities was not to maximise money income, i.e. exchange value. Now all of this has changed because the real primary aim of hospital trusts, colleges and universities has become to maximise money income by means of selling health care and tertiary education; they have become commodities. The fact that it is the State, and not the immediate recipients of these services, that actually pays for the services provided does not alter the situation in this respect.

The impact of the commodification of these services on the internal organisation of the bodies providing them has been a reorganisation along the lines of profit-making business firms. This means that expenditure on both constant and variable capital is minimised so as to try to make the books balance and generate a money surplus. In practice this has meant that the usual methods used to increase absolute and relative surplus value have been applied. As with the other spheres of economic activity discussed above, a distinction should be made between those employees directly providing the services for which unit funding is received, i.e. doctors, nurses, lecturers, and those employees in a supporting role, i.e. cleaners, administrators, who do not themselves actually render the services for which funds are paid. Management will seek to reduce their numbers and pay and extract the maximum amount of work from both categories of employees so as to minimise costs and maximise revenue. However it is the labour power of the first category, i.e. doctors, lecturers, etc., which actually generates the income of these organisations.

Does this then mean that medical personnel and teachers in further and higher education are productive labourers? By developing and maintaining human labour power they certainly produce value because labour power is a commodity, it has both use-value and exchange-value. What is more these employees are now subject to the same oppressive working practices as employees in the industrial and commercial spheres. Even so they have not become productive labourers because their labour power is still exchanged against revenue and not capital. The source of the income of medical personnel and lecturers is still taxes on profits and wages gathered by the State. However a small part of the work of hospitals, colleges and universities is for private clients who themselves pay the full costs of the services they receive. In so far as medical personnel and lecturers carry out this work they are productive labourers from whom surplus value is extracted. The capitalist class would ideally like all health care and education provided in this way, i.e. directly purchased by its consumers, and if this were the case then the above-mentioned personnel would in total become productive labourers. Given the incapacity of most people to pay directly for their health care and education this is unlikely to ever become the case.


1. The classical Marxist distinction between industrial capital and commercial capital was always hazy but with considerable changes in the economy since the nineteenth century has become even less useful and rather confusing. The distinction between productive labour and unproductive labour cuts across the one above because both types of labour power are found in both “industrial” and “commercial” enterprises.

2. None of the employees of bank capital are productive labourers. While banks and other financial institutions do have a necessary function under capitalism they are parasitic in a way that other capital is not. All of the income of bank capital comes from profits and wages of owners and workers outside of the banking sphere. Banks themselves create no new value or surplus-value. This parasitic relationship is the basis for a certain degree of antagonism within the capitalist class; between the fraction of finance capital and the fraction of industrial capital.

3. State-owned industrial capital must be clearly distinguished from State provided public services. The former operate in the same way as privately-owned industrial capital and extract surplus value from productive labourers. The latter, even if organised along the same lines as privately-owned capitalist enterprises are mainly financed from revenue and do not create any significant surplus value.

4. The commodification of public services does not, in the main, turn public service employees into productive labourers. Even so the reorganisation of public services along business enterprise lines brings about a certain degree of proletarianisation of these employees.

Ross J. Longhurst 05/96


Author: Other Aspect

A Marxist-Leninist journal, based in India and aimed at analysing the contemporary world events from a Marxist-Leninist perspective.

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