Mariana Mazzucato - The Value of Everything - Making and Taking in the Global Economy

Marx suggested that, initially, production enterprises might also carry out commercial capital activities. As production expands, however, separate capitalist enterprises will probably emerge to carry out these functions as commodity or money capitalists. Crucially, these capitalists and the labour they employ are purely concerned with the ‘circulation’ of capital; they do not produce commodities which generate surplus value and therefore they are unproductive. 54However, because they are also capitalist firms, they require the same rate of profit as does production capital. Consequently, some surplus value is diverted to become their income, diminishing the average profit rate in the economy. 55Although labour in firms engaged in the circulation of capital does not create surplus value, it is seen by the commercial capitalist as productive because it secures the capitalist’s share in existing surplus value and becomes a profit. 56The emergence of distinct commercial capital enterprises alters the structure of the whole economy and the amount of surplus value available to production capitalists.

Marx then identified ‘interest-bearing’ capital – capitalists such as banks who earned interest on loans that production capitalists took out to expand production. The generation of interest is possible because, in capitalism, money represents not just purchasing power – buying commodities for consumption – but also the potential to generate more profit in the future through investment as capital. 57The interest is deducted from the production capitalist’s profit rate. Interest-bearing capital, unlike commercial capital, does not lower the general rate of profit; it just subdivides it between recipients of interest and earners of profit.

The relationship between these two types of capital has distinct advantages. It can increase the scale and speed of capitalist production by making it easier to obtain capital and reduce the turnover time (the time it takes for capital to produce, sell and buy new means of production – one ‘period’ of production). Interest-bearing capital and the credit system it supplies also reduce the importance of commercial capital, for example by shortening the time the production capitalist has to wait for the merchant to return with the proceeds from sales. However, since interest-bearing capital does not produce any surplus value, it is not directly productive. 58

Finally, in addition to these types of capitalists, Marx identified another: owners of scarce things like land, coal, a patent, a licence to practise law, and so on. Such scarce things can improve productivity above the general productivity level – the same product can be produced in less labour time or with fewer means of production. That in turn creates ‘surplus profits’ – what Smith and Ricardo might have thought of as ‘rent’ – for capitalists, or landlords and proprietors, who can exploit these advantageous production conditions. Marx thus outlined a theory of ‘monopoly’ gain.

The key, in Marx’s view, is that labour is productive if – and only if – it produces a surplus value for production capital, the engine of the capitalist system; that is, value above and beyond the value of labour power. For Marx, then, the production boundary is defined not by sectors or occupations but by how profits are generated – more specifically, whether an occupation is carried out in a capitalist production context. Only the capitalist enterprise will accumulate the surplus value that can lead to an expansion of production. In this way, the capitalist economy reproduces itself.

Participating in ‘circulation’ or earning interest is not a judgement on such activities’ ‘usefulness’. It was simply necessary, Marx argued, for capital to transform itself from commodity form into money form and back again. 59In fact, Marx thought that a well-functioning sphere of circulation could raise the profit rate by reducing turnover time for capital. If the ‘circulation sphere’ was not functioning properly – for example, the system of credit that fuelled it was inefficient – it risked absorbing too large a chunk of the surplus value that capitalists hoped to generate by selling their goods and as a result impeding growth.

Marx refined Adam Smith’s distinction between productive (industry) and unproductive (services) sectors into something much more subtle. As can be seen in Figure 6, in Marx’s theory of value every privately organized enterprise that falls within the sphere of production is productive, whether it is a service or anything else. Here, Marx’s achievement was to move beyond the simple categorization of occupations and map them onto the landscape of capitalist reproduction. 60Marx’s production boundary now runs between goods and services production on one side and all those functions of capital that were not creating additional surplus value, such as interest charged by moneylenders or speculative trading in shares and bonds, on the other. Functions lying outside the production boundary take a chunk of surplus value in exchange for circulating capital, providing money or making possible surplus (monopoly) profits.

What is more, in distinguishing between different types of capitalist activity – production, circulation, interest-bearing capital and rent – Marx offers the economist an additional diagnostic tool with which to examine the state of the economy. Is the sphere of circulation working well enough? Is there enough capacity to bring capital to the market, so that it can be exchanged and realize its value and be reinvested in production? What proportion of profits pays for interest, and is it the same for all capitalists? Do scarce resources, such as ‘intellectual’ ones like patents on inventions, create advantageous conditions for producers with access to them and generate ‘surplus profits’ or rents for those producers?

Ricardo and Marx refined the theory of rent to make it clear that rent is income from redistributing value and not from creating it. Landlords do not create the soil but they can generate income from their right to exclude from the land others (capitalists) who might use it to produce value. Rent of any kind is basically a claim on the total of social surplus value and therefore lowers productive capitalists’ profits. As we will see in the next chapter, neoclassical (mainstream) economics has fundamentally changed this idea of rent into one of imperfections and impediments – which can be competed away.

All these issues have come to the fore again since the 2008 financial crisis. At their heart is how finance has been self-serving, and not actually serving what the American economist Hyman Minsky (1919–96) called the ‘capital development of the economy’. 61In other words, instead of facilitating industrial production, finance has simply degenerated into a casino, aiming to appropriate as much of the existing surplus as possible for itself. 62But whether that casino is seen as a mere imperfection or as a stable source of unearned income (whereby activities that are not creating value are somehow allowed to be presented a such) makes all the difference in policies that aim to reform the system.

Marx’s attempt to define the production boundary was more rigorous than those of Smith and Ricardo and was certainly a long way from those of Petty and King. He introduced the idea of labour power as an objective and invariable standard of value, building on the essential premise shared by earlier economists that value derived from labour. He also shared with them the belief that government was unproductive. The early and classical economists left a legacy of ideas about value – on currencies and protection, free trade, rent, government and technology – which have reverberated down the centuries and remain alive today.