THE WELFARE SIGNIFICANCE OF PRODUCTIVE
THE steady tendency of the previous chapters has been to shift the focus of our attention from the economics of equilibrium to the economics of expansion. Our survey of the classical economists' general outlook towards the nature of the economic problem has brought out their deep-rooted belief that the economic welfare of society can be promoted in a more far-reaching manner by expanding the total volume of its economic activity than by accepting its available resources as given and by trying to allocate them more efficiently among different industries. Our further analysis has shown that, in accordance with this general stand- point, the classical economists looked upon their policy of free competition primarily as an auxiliary instrument of economic expansion opening up new markets and outlets for investment rather than as an instrument of allocative efficiency. If that is true, one conclusion clearly emerges. The doctrine of Productive Labour with its intimate connection with the "balance of production and consumption" which determines the total level of economic activity must be regarded as the key proposition of the classical welfare analysis, ousting the allocative concept of competition from the central position normally ascribed to it in current interpretations.
In the preceding chapters, to avoid overloading the argument, we have used productive labour in its broad sense, meaning by that the labour which produces "necessaries" or basic wage goods and durable capital goods, both of which can be used in the further reproduction of wealth. This has been sufficient to distinguish it in general terms from unproductive labour which produces "luxury" services catering for immediate consumption. Our above conclusion, however, calls for a more detailed examination of the various ideas underlying this distinction and a brief history of the doctrine in its later phase may be instructive.
As early as 1804, Lauderdale had put forward a criticism of this "extraordinary distinction" which few later economists have improved.