Adam Smith’s Definition of Productivity


I recently finished reading Adam Smith’s landmark book, The Wealth of Nations. It was written in 1776 and is widely considered to be the basis of the study of economics. One of the few interesting points I grabbed from the book was how Adam Smith defined productivity.

Smith divided up labor into two broad categories, productive and unproductive labor. Productive labor, according to Smith, was any work which fixed itself in a tangible object. Unproductive labor, was any work where the value was consumed as soon as it was created. Smith contrasted the role of laborers in a manufacturing plant (productive work) with the tasks of a servant (unproductive work).

I hadn’t seen productivity defined this way before, and it struck me as an interesting idea. The idea that unless your efforts fasten themselves in some investment, the work is unproductive.

How Much of Your To-Do List is Unproductive?

After reading this definition, I was surprised by how much of my time is spent on activities Smith would have described as being unproductive. Answering emails, eating, sleeping, finishing assignments, reading and exercising would all be considered unproductive labor. The effort spent doesn’t fix itself in an investment.

Certainly, many of those activities are still valuable. Just because Smith says exercising is unproductive, doesn’t mean you should sit on the couch all day. But this more limited definition of productivity calls into question the real value of how you spend your time.

Is your time being consumed or invested? Are you working on activities that will return value, or finishing tasks that won’t matter when you’re done? Is your energy devoted to things you’ll care about 5-10 years from now, or will none of it matter?

What’s Your Productivity Ratio?

Add up the amount of time you spend that gets fixed into an investment you own. This could be time working on a new product for a business, time spent increasing your education, time invested in improving your health. Divide this by the total amount of time you aren’t sleeping. This would be your productivity ratio.

Improving your productivity ratio should be your goal. If you’re only spending 1% of your time on tasks that will fix themselves in an investment, you’ll never see any returns. You might be incredibly efficient at completing work. But unless that work is productive, it won’t make a difference in the long-run.

Productivity shouldn’t be limited to just quickly completing your to-do list. Ask yourself if your efforts will fasten themselves to an investment. If they aren’t, perhaps you’re not as productive as you think.

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  • Ronald Ferrill

    A. Smith is Terrific!
    Careful: Output unless it is value-added is not useful output. So, in many businesses I have seen the trick of overproducing with adding only overtime for the direct labor, or simply more direct labor, which “absorbs” the unproductive costs (management, supervisors, quality control, inventory movement, inventory, SG&A, Development, interest, maintenance, etc.) at a higher rate (more units to divide the unproductive costs into), so it looks as though that business is more “Productive”, that is, it’s productivity has improved. However, if the units produced are not turned into revenue, then there is a cost of inventory (inventory carrying cost) to be considered.

    In my “Lean Enterprise” “Continuous Improvement” “Operational Excellence” whatever work within and with businesses, I always have tried to get beyond the Unit Productivity, toward Enterprise Productivity. If you can’t turn “units” into CASH, you got nothin’.

    As for the “to do” list, in itself it is not a productive thing, but can be production enhancing if it serves a purpose to keep you on track doing the most important things vs just meandering through the day and jumping at urgent crap.

    Just thought of the antithesis of productivity: EU central government and banks and other EU ether (although it smells like methane). That entire bureaucracy is not elected, and subtracts from the productivity of the individual countries participating. So an unelected government bureaucrat decides that a company who made a deal with a sovereign country must retroactively pay taxes that the bureaucrat determines should have been paid if they (the non-entity EU) had anything to say about it. This will take years to settle. How productive is that? To the bureaucrats, very much so, since they are being paid to suck the blood of actual producers of goods and services…

    Read: “The Rotten Heart of Europe” or just the introductions.