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

This book does not try to argue for one correct theory of value. Rather, it aims to bring back value theory as a hotly debated area, relevant to the turbulent economic times in which we find ourselves. Value is not a given thing, unmistakably either inside or outside the production boundary; it is shaped and created. In my view, today finance nurtures not the industries for which it is meant to ‘grease’ the wheels of commerce, but rather other parts of the financial sector itself. It thus lies outside the boundary, even though it is formally counted as being inside. But this does not have to be the case: we can shape financial markets so that they do indeed belong inside the boundary. This would include both new financial institutions dedicated to lending to those organizations interested in long-term high-risk investments that can help foster a more innovative economy, as well as changing measures in the tax code that reward long-term investments over short-term ones. Similarly, as I discuss in Chapter 7, changes to the current unhelpful use of patents could help them stimulate innovation rather than stifle it.

To create a fairer economy, one where prosperity is more broadly shared and is therefore more sustainable, we need to reinvigorate a serious discussion about the nature and origin of value. We must reconsider the stories we are telling about who the value creators are, and what that says to us about how we define activities as economically productive and unproductive. We cannot limit progressive politics to taxing wealth, but require a new understanding of and debate about wealth creation so that it is more fiercely and openly contested. Words matter: we need a new vocabulary for policymaking. Policy is not just about ‘intervening’. It is about shaping a different future: co-creating markets and value, not just ‘fixing’ markets or redistributing value. It’s about taking risks, not only ‘de-risking’. And it must not be about levelling the playing field but about tilting it towards the kind of economy we want.

This idea that we can shape markets has important consequences. We can create a better economy by understanding that markets are outcomes of decisions that are made – in business, in public organizations and in civil society. The eight-hour working day has formed markets – and that was the result of a fight held in labour organizations. And perhaps the reason there is so much despair across the globe – despair now leading to populist politics – is that the economy is presented to us simply as ‘made’ by trade rules, technocrats and neoliberal forces. Indeed, as the book will show, ‘value’ theory itself is presented as a sort of objective force determined by supply and demand, rather than deeply embedded in particular ways of seeing the world. The economy can indeed be made and shaped – but it can be done either in fear or in hope.

The specific challenge I pose here is to move beyond Oscar Wilde’s cynic, who knows the price of everything but the value of nothing, towards an economics of hope, where we are better empowered to question the assumptions of economic theory and how they are presented to us. And to choose a different path among the many that are available.

1

A Brief History of Value

There is one sort of labour which adds to the value of the subject upon which it is bestowed: there is another which has no such effect. The former, as it produces a value, may be called productive; the latter, unproductive labour.

Adam Smith, The Wealth of Nations (1776)

Today we take increasing prosperity for granted. We assume that by and large the next generation will be better off than the last. But it was not always so. For most of human history people had no such expectations and, partly because living standards improved at best very slowly, few thinkers devoted much time to asking why some economies grow and others do not. In the early modern period, the pace of change quickened. Previously static economies became dynamic. Movement was in the air. The rise of the nation state in Europe, the need to finance war, colonization, machinery, factories and coal, combined with expanding populations to stimulate new thinking across many fields. Governments and people of all stations in life wanted to know what was causing unprecedented movement and how it could be managed. What taxes can we raise? Why are my wages so low compared with the profits of capitalists? How sure can one be of the future when investing now? What creates value?

Understanding the nature of production is key to answering such questions. Once productive activities have been identified, economic policy can try to steer an economy, devoting a greater share of capital and effort to productive activities which propel and sustain economic growth. But the distinction between what is or is not productive has varied depending on economic, social and political forces. Ever since economists began to explore the changing conditions of production some 300 years ago they have struggled to provide a rationale for labelling some activities productive and others unproductive. After all, economists are creatures of their time like everyone else; in terms of understanding value, what’s important is to distinguish durable principles from transitory ones – and also, as we will see, the way that ideological positions develop.

This chapter explores how theories of value evolved from roughly the mid-seventeenth century to the mid-nineteenth century. The thinkers of the seventeenth century focused on how to calculate growth according to the needs of the time: fighting wars, or increasing competitiveness relative to another country – for example, England against its commercial and naval rival, Holland. The mercantilists focus on trade and the needs of merchants (selling things). From the mid-eighteenth to the late nineteenth century, economists saw value as arising from the amount of labour that went into production, at first farm labour (the physiocrats ) and then industrial labour (the classicals ). This value, they believed, therefore determined the price of what was finally sold. Their theories of value – of how wealth was created – were dynamic, reflecting a world being transformed socially and politically as well as economically. These economists focused on objective forces: the effects of changes in technology and the division of labour on how production and distribution are organized. Later, as we will see in the next chapter, they were superseded by another perspective – that of the neoclassicals – focused less on objective forces of production and more on the subjective nature of the ‘preferences’ of different actors in the economy.

THE MERCANTILISTS: TRADE AND TREASURE

Since ancient times, humanity has divided its economic activity into two types: productive and unproductive, virtuous and vile, industrious and lazy. The touchstone was generally what kind of activity was thought to further the common good. In the fourth century BC, Aristotle distinguished a variety of more or less virtuous jobs, depending on the class (citizen or slave) of the ancient Greek polis dweller. 1In the New Testament, the apostle Matthew reported that Jesus said it was ‘easier for a camel to go through the eye of a needle than for a rich man to enter into the Kingdom of God’. 2During the Middle Ages, the Church disparaged and even denounced moneylenders and merchants who ‘bought cheap and sold dear’; 3while they may not have been lazy, they were considered unproductive and vile.

Pre-modern definitions of what work was or was not useful were never clear-cut. With the onset of colonialism in the sixteenth century these definitions became even more blurred. European colonial conquest and the protection of trade routes with newly annexed lands were expensive. Governments had to find the money for armies, bureaucracies and the purchase of exotic merchandise. But help seemed to be at hand: extraordinary amounts of gold and silver were discovered in the Americas, and a vast treasure poured into Europe. As these precious metals represented wealth and prosperity, it seemed that whoever bought, owned and controlled the supply of them and the currencies minted from them was engaged in productive activities.