Theories of Surplus Value, Part I, Chapter 4 - Part 15

“Smith’s second view of “productive” and “unproductive labour”—or rather the view that is interwoven with his other view—therefore amounts to this: that the former is labour which produces commodities, and the latter is labour which does not produce “any commodity”. He does not deny that the one kind of labour, equally with the other, is a commodity.” (p 171) 

In other words, whether the labour is productive or unproductive it is itself a commodity, and thereby “deserves its reward”. Its value is equal to its own cost of production. In reality, Smith is in error here, because it is not labour which is a commodity, but labour-power. What the worker sells is their capacity to perform labour.

“Labour itself, in its immediate being, in its living existence, cannot be directly conceived as a commodity, but only labour-power, of which labour itself is the temporary manifestation.” (p 171)

Smith's conception is wrong for two reasons. Firstly, he conceives only that labour to be productive which is embodied in a material product, whereas labour creates value just as much in the production of non-material products, such as services, transport and so on. Secondly, his concept of the embodiment of labour within the commodity, implies an embodied labour theory of value, whereby it is the concrete labour employed in the production which fixes this value within, rather like that concrete labour fixes the use value into the product.

This concept leads to a false view that the value of the commodity is somehow intrinsic to it, rather than being merely a reflection of a social relation.

“The materialisation, etc., of labour is however not to be taken in such a Scottish sense as Adam Smith conceives it. When we speak of the commodity as a materialisation of labour—in the sense of its exchange-value—this itself is only an imaginary, that is to say, a purely social mode of existence of the commodity which has nothing to do with its corporeal reality; it is conceived as a definite quantity of social labour or of money. It may be that the concrete labour whose result it is leaves no trace in it. In manufactured commodities this trace remains in the outward form given to the raw material. In agriculture, etc., although the form given to the commodity, for example wheat or oxen and so on, is also the product of human labour, and indeed of labour transmitted and added to from generation to generation, yet this is not evident in the product. In other forms of industrial labour the purpose of the labour is not at all to alter the form of the thing, but only its position. For example, when a commodity is brought from China to England, etc., no trace of the labour involved can be seen in the thing itself (except for those who call to mind that it is not an English product). Therefore the materialisation of labour in the commodity must not be understood in that way. (The mystification here arises from the fact that a social relation appears in the form of a thing).” (p 171-2)

In other words, it is the basis of commodity fetishism.

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