Value Beyond Price


The Value of Everything: Making and Taking in the Global Economy
By Mariana Mazzucato
Public Affairs


Whether it is the financial sector, health care, trade, or the nature of work, the question of what is valuable in our economy has become more and more prevalent in our politics. Economists have not been particularly useful guides in this debate. This shouldn’t surprise us, argues economist Mariana Mazzucato in her new book, The Value of Everything: Making and Taking in the Global Economy.

Economists largely abandoned that question a century ago, assuming that anything and everything that trades for money counts as valuable, and little else. The title is based on Oscar Wilde’s comment that a cynic is someone who knows the price of everything but the value of nothing. It’s easy to extend this one-liner to ridicule economists. But Mazzucato wants instead to reconnect the debate around value within a politics that fits our era.

In her first, groundbreaking book, The Entrepreneurial State (2013), Mazzucato opened people’s eyes to the idea that the government plays a significant, crucial role when it comes to innovation. In the popular imagination and increasingly in academic discussions, innovation was the result of lone entrepreneurs and startups. Mazzucato sought to put the government back into this equation, as inventor, funder, risk-manager, and key component. Mazzucato got people thinking seriously about the government research that went into the iPhone and countless other commercial applications—and, in turn, how value is created.

In her new book, Mazzucato extends this debate about creation of value to the economy as a whole. The book begins with a historical debate between two sets of actors over the notion of value. The first wave sees value as an open question, and she lays out the debate among the French Physiocrats of the 1700s (who saw value as deriving from land), the classical British economists Adam Smith and David Ricardo, culminating with the work of Karl Marx, who saw all value as coming from labor.

Though the debates among these thinkers were wide, they all explored how to define true value as opposed to unproductive work. For Ricardo, unproductive labor is about redistributing value rather than creating it. For Marx, value is tied to surplus; the functions of capital that don’t produce value, such as interest or speculation, fall in the category of unproductive labor. For these classical thinkers, “use value” was at least as important as “exchange value.” The economy was seen as one of forces collaborating and competing for what was created. Value, and its allocation, come out of this essentially political question.

This entire debate was wiped clean by the marginalists of the late 1800s. This handful of scholars, led by Alfred Marshall, looked to scarcity, the setting of prices, and the subjective experiences of individuals to determine value. Using calculus and other formal mathematical tools, these economists built their economics up from the idea that there is no objective value of goods, just their going price as people refine their preferences at the margin. Supply and demand takes over, and regulates value in terms of what someone will pay in the marketplace.

For marginalists, all income is earned income, and the notion that there is productive and unproductive work simply disappears in a circular logic that something is valuable to the extent someone is willing to pay for it. The notion of “abnormal” profits simply can’t exist given the premise of a self-regulating economy. This kind of judgment was formalized both in the economic models taught to generations of students and in our national income statistics and the gross domestic product that forms our notions of growth.

To demonstrate the failure of this paradigm, Mazzucato spends a third of the book exploring how the financial sector has hijacked the overall economy. This isn’t just about Too Big to Fail banks taking outsized risks, leaving the chaos for others to handle. Mazzucato summarizes the latest research arguing that finance is too big overall, and has come to dominate the non-financial economy. Economists struggle to understand this. Given that the sector is so profitable, standard theory holds that it must have added that much value. But what is actually value here? Who gains from this gigantic financial sector, and with what trade-offs? The marginalist revolution has removed not just a set of tools to discuss this major change critically, but it has removed it as even a question worth exploring.

Mazzucato, cycling back to her earlier work, shows how this inability to discuss value also corrupts the discussion of innovation and the public sector. Patents and other tools have come to be seen as “rights” even as they reduce competition and shut down broader investment and experimentation. The government is seen as an inefficient beast best to starve through austerity, rather than a key component that sets the terms of how the economy runs.

The book is an excellent overview on the latest arguments in all these areas. Though people are right to be worried about the financial sector, it would have been of interest for Mazzucato to go even wider with her analysis. Much of the classical debate about value was fundamentally about workers, but the workplace shows up in Mazzucato less than one would expect. Deep issues on how necessary household labor goes missing from the national accounts are treated only in passing. The analysis is sharp enough that a reader wants more.

The book also forces a debate about the conventional view that the only problem with the economy is that it isn’t enough of a market. Mazzucato rehabilitates but also complicates the discussion of “rents,” the economist’s term for super-normal or excessive profits. In standard economics, rents are not much of a problem because of the assumption that the market itself soon competes them away, and any rents must be the work of government. Yet the exorbitant profits of platform monopolies and other industries with pricing power suggest that rents are pervasive. Conversely, much of what people want from the economy involves creating floors and protections, using excess profits for social uses. The ideas that nobody working full-time should be in poverty, and that people with pre-existing conditions should be able to get health care, suggest a politics that focuses on not creating a perfect market but instead thinking about how markets can be made to better serve people.

The glib notion that getting government out of the market’s way can solve all economic problems can’t speak to good versus bad rents in the economy. As such, it largely defaults to attacking government action, as if there could be a market economy without the state. This is the essence of so-called public choice theory.

As Mazzucato writes, “It is not enough to look at impediments to an idealized form of perfect competition. Yet mainstream ideas about rent do not fundamentally challenge how value extraction occurs—which is why it persists.” Rent here becomes a question-begging exercise. As Mazzucato notes, using the “term ‘rent’ to analyse inequality will be influenced by [one’s] idea of what value is and what it represents.” As such, policy should be understood as “co-creating markets and value, not just ‘fixing’ markets or redistributing value.”

This is an important contribution, one necessary to our moment. The Value of Everything reminds us that there is not just one way to do capitalism, that there can be capitalism beyond the fever dreams of Ayn Rand and Paul Ryan, and that markets can be structured to bring about more growth and a more balanced society.

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