The Value of Everything | Mariana Mazzucato

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

Introduction

In the compelling book ‘The Value of Everything: Making and Taking in the Global Economy’ by Mariana Mazzucato, readers will explore the idea of value in economics, its evolution over time, and its impact on our understanding of productivity and wealth. Delving into the works of early economists such as François Quesnay, Adam Smith, and David Ricardo, the summary highlights how perceptions of value have shaped economic theories and practices throughout history. As readers progress through the content, they will examine the role of the financial sector, the emergence of the innovation economy, and the influence of government in determining value, all while questioning notions of productive and unproductive work.

The Productivity Debate

The concept of productive work has been debated since the seventeenth century. François Quesnay, the “father of economics,” believed that only agriculture and mining create value, while all other work only generates money in exchange for moving that product around. For Quesnay, the nobility and landlords, as part of the “sterile class,” are unproductive. This view was shared by classical economists such as Adam Smith, David Ricardo, and Karl Marx. Smith’s free-market ideal was meant to be free from rent, and he believed that manufacturers were the truly productive force. Wealthy people hoarding money or spending it unwisely was seen as detrimental to the economy. Ricardo defined rent as profit gained from a monopoly of something scarce, which works for any industry in monopoly control. In the next part, we will delve into the changing meaning of value.

The Evolution of Value in Economics

The concept of value in economics has evolved from labor-based to consumer-based. Neoclassical economists developed the theory of marginal utility, where value depends on an item’s utility and scarcity. This new definition of value led to the idea that all paid work is productive and affected the concept of rent. However, some argue that rent is still an example of value extraction.

The Flaws in Measuring a Country’s Wealth

The commonly accepted measure of a country’s wealth, Gross Domestic Product (GDP), is highly flawed. The System of National Accounts (SNA) uses marginalist principles, whereby anything that fetches a price is considered to add value. The way governments are accounted for is problematic: providing services at lower rates leads to public services being regarded as inefficient, which effectively penalizes nations for offering public services. Additionally, the financial sector, which redistributes existing wealth, was not included in GDP calculations until it became too big to leave out, leading to the assumption that it creates value. However, GDP does not distinguish between services that add or extract value from the economy. Therefore, GDP is not an accurate or fair representation of a country’s wealth.

The Harsh Reality of the Growth of the Financial Sector

The financial sector’s growth is not as good for the economy as commonly assumed. Institutions have developed clever ways of generating income, such as asset management and derivatives. The sector’s share of GDP has continued to rise since the 1970s, but this does not guarantee financial success. The sector is meant to promote economic growth, but the economy’s faster expansion than it has caused is evidence of it extracting an ever-growing amount from it, like rising bus fares. Governments treat finance as a productive economy part to make growth appear high, but the banks’ ability to extract value from the economy such as rent can be devastating, as proven by the financial crash.

Dominance of Financialization

This book reveals how financialization has taken over the entire economy, regardless of sector. It all started with an article by Milton Friedman in the 1970s which encouraged businesses to put shareholder value above everything else, leading to the prioritization of maximizing profits over all other concerns. As a result, even non-financial firms like Ford started to use financial tools to increase revenues. This has resulted in a shift towards shareholder-first mentality which has led to widening income inequality and unfair executive payouts. Share buybacks have also become popular, enabling the company to buy back shares, which decreases the total number of company shares, and hence increases the worth of each remaining share. In trying to maximize shareholder value, stakeholders are often ignored, which is an issue. The alternative would be to consider stakeholder value instead, as employees and other individuals involved in running the company all have a stake in its success, whether or not they own shares.

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