The Value of Everything

Economists from Adam Smith to Marx argued about which activities produce value and which merely collect rent. Mazzucato's claim is that modern economics dropped the question. Once value came to mean whatever a market will pay, any income could be counted as productive. That, she argues, let finance be counted as a productive sector in GDP, and lets companies such as Gilead justify drug prices by the value they claim to deliver.

The first half is a history of value theory and of how national accounts came to measure output. The second half applies it to finance and what she calls casino capitalism, technology firms that profit from taxpayer-funded research, and a public sector whose investments are booked as costs.

Mazzucato is a professor at University College London and founding director of its Institute for Innovation and Public Purpose, and the author of The Entrepreneurial State. The book was shortlisted for the 2018 Financial Times and McKinsey Business Book of the Year. Reviewers found it dense in places. Hazel Henderson faulted it for leaving out ecological and thermodynamic critiques of economics, and Rob Crawford doubted that mission-oriented projects alone could bring back strong growth.

For readers in asset management, private equity or banking, it is the most rigorous version of the argument that much of finance extracts rather than creates value, worth reading because it challenges the industry's own account of itself.

1. Price is not the same as value. If anything a market pays for counts as value created, there is no way to identify rent-seeking, which is the gap Mazzucato wants to close.
2. GDP's treatment of finance is a choice. National accounts once treated much of finance as redistribution rather than production. Counting it as output makes the sector's growth look like progress by definition.
3. Value-based pricing needs scrutiny. Gilead's Harvoni pricing shows how a claim about value to the health system can justify prices with little reference to what the drug cost to discover or make.
4. Public research underpins private returns. Many technology and drug fortunes rest on taxpayer-funded science, which she argues should give the public a share of the upside.
5. Public investment is mismeasured. Because government spending on research and infrastructure is booked as expense, not as an asset, policy debates undercount the state's role in creating wealth.

After a preface on stories about wealth creation and an introduction on making versus taking, the book runs through nine chapters.

1. A history of value. Mazzucato traces how Smith, Ricardo and Marx drew a boundary between productive and unproductive activity, and who they saw as rent collectors.
2. Value in the eye of the beholder. She explains how marginal utility theory made price the measure of value and erased that boundary.
3. Measuring the wealth of nations. She shows how GDP accounting came to treat finance and other rent-earning activities as production.
4. Finance. Two chapters follow finance from a regulated utility to a colossus, and the rise of what she calls casino capitalism.
5. The real economy. She covers the financialization of nonfinancial companies, then how the innovation economy lets tech and pharmaceutical firms extract value from publicly funded research and patents.
6. The state. She argues that public investment is undervalued because it is recorded as spending, and closes with the economics of hope: mission-oriented policy and a clearer, shared theory of value.

Who really creates wealth in our world? And how do we decide the value of what they do? At the heart of today's financial and economic crisis is a problem hiding in plain sight. In modern capitalism, value-extraction - the siphoning off of profits, from shareholders' dividends to bankers' bonuses - is rewarded more highly than value-creation: the productive process that drives a healthy economy and society. We misidentify takers as makers, and have lost sight of what value really means. Once a central plank of economic thought, this concept of value - what it is, why it matters to us - is simply no longer discussed. Yet, argues Mariana Mazzucato in this penetrating and passionate new book, if we are to reform capitalism - to radically transform an increasingly sick system rather than continue feeding it - we urgently need to rethink where wealth comes from. Who is creating it, who is extracting it, and who is destroying it? Answers to these questions are key if we want to replace the current parasitic system with a type of capitalism that is more sustainable, more symbiotic: that works for us all. The Value of Everything will reignite a long-needed debate about the kind of world we really want to live in.