Productive Consumption: Capital Goods and Productive Capacities

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ECONOMICS HONOURS
SEMINAR PAPER

PRODUCTIVE CONSUMPTION: CAPITAL GOODS AND PRODUCTIVE CAPACITIES

TEJASWINI KATE
SYBA (A)
ROLL NO.56

CONTENTS

Preface 3 SECTION I: Productive Consumption an Overview 4 1. What is productive consumption?

2. An example from the Keynesian purview 3. How is it different from non-productive consumption?

SECTION II: Relevance of Productive Consumption 8 1. Intrinsic relation to labour economics & GDP accounting 2. Capital goods

3. Creation of productive capacities
4. Productive Chains

SECTION III: 12 Conclusion
Appendix: Synopsis

SECTION IV: 14 Bibliography

PREFACE

Production and consumption are two inseparable aspects of the production and reproduction of human life, but in modern society these concepts have become separated.
Production and consumption are identical in another way: production consumes labour-power and other products of labour, and is therefore equally consumption; production of labour-power entails consumption of food, education and so on and so forth, and is therefore equally consumption. Thus production of the means of production is impossible without production of the means life and vice versa, and the system of distribution and exchange must ensure the proper balance between the two.

Thus the system of distribution and exchange, which mediates between productive consumption and consumption in production, is not just an entity external to production, but an integral part of the relations of production. The failure of the method of distribution and exchange to maintain proper coordination of consumption and production leads to crisis.

Further, the system of distribution and exchange (commerce) is not only inseparable from production and consumption (labour) but the system of distribution and exchange is one of the forces of production, production is constituted the cooperation of labour and therefore potentially in the exchange of labour and thus the system of distribution and exchange necessarily penetrates the labour process and becomes a part of it.

SECTION I

What is productive consumption?
Productive consumption adds to utility and income at the same time. The shadow price of a productive good is equal to its money price less its marginal product. As more of the good is consumed, its shadow price rises because of diminishing productivity, and the consumer's full income also rises because the marginal product is positive. Productive consumption enables the satisfaction of current needs and simultaneously increases the productive potential of labour. From the perspective of growth theory, the productive-consumption hypothesis is of fundamental interest because it modifies the harsh inter-temporal consumption trade-off traditionally assumed. Gersovitz (1988) distinguishes three forms of productive consumption: (A) Nutrition,

(B) Health
(C) Education
All three forms serve the satisfaction of current needs, and, consequently, can be labelled as consumption expenditures; though occasionally this might be assessed differently in the case of education. Simultaneously, the efficiency of labour or – depending on the interpretation – the stock of human capital increases. From this point of view, the underlying consumption expenditures can be classified as productive....
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