The Value of Everything is Italian economist Mariana Mazzucato’s follow-up to her book The Entrepreneurial State, in which she explored the roles of the private and public sectors. Her new book builds on this work by investigating how value is created in the economy.
At various points in history different things have been considered to be a measure of value. Governments might have looked at gold reserves, or precious metals brought in from colonies. An alternative measure of value was to calculate a country’s capacity to fight wars. Some of the earliest attempts to measure the net worth of a country – early ancestors of GDP – were in the interests of making war. Other measures of value include land or labour capacity, with early economists drawing up lists of different professions that were productive (traders, farmers), and those that were not (lawyers, the nobility).
Mazzucato argues that as economics evolved, value came to be seen through the lens of marginal utility and remained there. If something was useful enough for people to pay for it, it had value, and a vibrant debate essentially stalled. As the book explains, value is now understood as price. If something can command a price, eg if there is a market for it, then it is considered to add value to the economy. But that has consequences.
The subtitle of the book is ‘making and taking in the global economy’, and one of the biggest consequences of our modern view of value is that we “can no longer reliably say who creates value and who extracts it.”
Banks, for example, were not traditionally seen as productive. They moved money around, but did not create new wealth. Even the early days of GDP did not include it. When the banking sector lobbied successfully to be brought in, it changed the definition of value. GDP went up, and that in turn encouraged the financial sector to expand. But the argument over whether banking is actually productive or not remains unresolved – and economics lacks the tools to separate useful financial activity from rent-seeking and speculation.
On the flipside, other things that clearly do produce value don’t get measured properly. A corporation like Google provides its services in exchange for data and ad views, rather than charging us a price per search. So even though it contributes a huge amount of value to the economy, it goes largely unmeasured. The public sector is also chronically undervalued, because its contribution is hard to quantify in price terms. That leads to assumptions that the private sector does things better and government should be small, limiting itself to fixing market failures rather than investing proactively.
Mazzucato insists that the book “does not try to argue for one correct theory of value.” It’s the debate itself that the author is interested in, and why we have settled for something that doesn’t quite work in the 21st century.
The Value of Everything is a serious book, clear and readable, if a little staid. It draws on the history of economics and on contemporary examples, and explains the intellectual scaffolding behind many popular ideas, revealing some of them to be more myth than science. My only hesitation with it is that Mazzucato is concerned that if we don’t get our definition of value right, it could harm growth. And I think that if we’re going to open up questions of value, then let’s take a long hard look at the idea of growth itself, and what its place might be in an age of rising emissions and depleting resources.