Stockholm Papers in Economic History,
Stockholm University, Department of Economic History

Abstract: This paper argues for trans-historical reformulations of the basic economic concepts of production, work and consumption. The definition of the production boundary by System of National Accounts (SNA) is inconsistent from a scientific point of view. For example, while some non-market and illegal services are viewed as productive, others are not, and services and goods are treated differently. The definition proposed by feminist economics, the so-called third person criterion, is consistent, but in need for further development; furthermore, it is a definition of work and not of production. The purpose of this study is to investigate whether it is possible to formulate a non-eclectic set of logically consistent definitions that could be considered variations of a common underlying understanding across various theoretical traditions – mainly Classical, Neoclassical, Institutional, Marxist, Feminist and Keynesian Economics – of how humans consciously change external nature in order satisfy human needs. Important issues concern how to deal with violence, double counting of transaction costs, human capital formation, non-market activities and causation of final consumption. Production, work and consumption are defined as relations between events, the subject matter and the agent, and in the main definitions reduced to non-economic sentences. Even the utility concept is avoided. First-order logic is used, complemented with modal operators for some of the sentences. In this study, it is shown that production, work and consumption all share the common feature of intentional physical transformation of the intrinsic properties of the subject matter. The object transformed during the productive activity and work must at some point in time be external to the agent. For work, the purpose of transforming an external object must not lie in the transformation of the agent. A productive activity must potentially be able to cause the satisfaction of human needs, or final consumption, which is not a condition for work or required by the third-person criterion. Final consumption involves the transformation of the subject matter that is a final purpose for the consumer or serves as a purpose for transforming the consumer. Using a criterion applied by the institutional economist Cheung to identify transaction costs, this study defines social reproduction as an activity that would not occur in a Robinson Crusoe economy. Social reproduction occurs under an institutional setting. We can further differentiate between coercive and non-coercive social reproduction. In this study, eight different definitions of production are presented. The definition of agent external production is close to the third person criterion, but the possible causation of future final consumption is included as a condition for a productive activity. It is also related to the basic neoclassical model with its assumptions of no transaction costs. The definition of agent external non-coercive production entails that transformations of persons against their own will, whether legally or illegally performed, are unproductive activities. The definition of agent external non-social production entails that all socially reproductive activities are unproductive, and comes close to the distinction made by Classical and Marxist economists of productive and unproductive work. Humanity external production only includes the transformation of non-persons. The three definitions of time scale invariant production entails that human capital formation could be considered productive activities. Market production comes close to Keynesian theory and the present definition of SNA, with the difference that it excludes non-market goods production. The present study also opens for the possibility of unproductive work, for example failed production or professional murder, and productive final consumption that does not involve any work, for example hobby-hunting, play with children or research activity for own pleasure. Which definition of production is applied greatly affects the modelling and empirical application of growth theory and the analysis of the driving forces in economic history. For example, assume trade causes labour productivity outside of trade to increase four-fold due to specialisation, while the share of GDP in total working time increases from nil to half. With the same value added per productive hour and with total hours worked kept constant, the value added of agent external production then records a four-fold increase, while that of non-social production only a doubling. Similarly, during wars the SNA GDP often increases substantially, while the concept of agent external non-coercive production entails that all war expenses are treated as unproductive. Time frame invariant production grows faster than agent external production during expansions of the education system. Market production could serve important analytical purposes, for example to investigate the relation between money supply and inflation, but should be rid of inconsistencies such as the inclusion of non-market goods production.

Keywords: GDP; production; work; consumption; economic philosophy; SNA

JEL-codes: A10; B13; B14; B40; B50; B51; B52; B54; D10; E00; E21; E23; J00; J24; N00; N01; O00

32 pages, October 9, 2016

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