Book Review: ‘The Value Of Everything’ By Mariana Mazzucato, Public Affairs, 2018

  • Economist Mariana Mazzucato unveils the folkways of her profession over its history.
  • She reveals the many unsubstantiated assumptions underlying so-called economic laws.
  • The thesis challenges the business models of the FAANGs.

Author Mariana Mazzucato is already a widely celebrated economist, winner of the Leontief Prize and many other top honors; heads the Institute for Innovation and Public Purpose at University College, London; and is an advisor to the European Commission on research, science and innovation. Her latest book, The Value of Everything, follows her award-winning The Entrepreneurial State: Debunking Public Vs. Private Sector Myths (2015).

Mazzucato’s critique of our current global financial system is as sweeping as that of economist and London School of Economics Professor Nick Silver in his Finance, Society and Sustainability, (2018). While Silver’s view is broad and satirical, Mazzucato’s analysis is deeply critical of the theoretical sub-structure used by her tribe, the economics profession, to justify its theorems and buttress its so-called laws of economics.

Yet even Mazzucato misses her profession’s effort to portray their theorizing as science and its efforts to legitimize itself and its policy prescriptions as scientific: the Swedish Riksbank’s financial prize lobbied onto the Nobel Prize committee to set up the dubious “Bank of Sweden Prize in Economic Science (SIC) in Memory of Alfred Nobel . Mazzucato erroneously cites this Bank of Sweden Prize as a Nobel Prize in The Value of Everything, even though this weakens her arguments. She could have referred to this long-standing intellectual scandal, revealed in many articles by Alfred Nobel’s descendent, lawyer Peter Nobel, as well as others by Nassim Nicholas Taleb, who tried to bring this matter to the attention of the King of Sweden, without success.

Mazzucato bores in on how economic theories have consistently failed over its history to clearly delineate the difference between value-creation and value-extraction. The political ramifications of this continual mis-casting the roles of various economic agents and activities are also well-described in Makers and Takers (2016) by Rana Faroohar, who is cited. Mazzucato points out that finance in earlier times was not considered a primary production activity, but one of re-distribution. In Chapter 4 Finance: A Colossus is Born, she details how the power of financial intermediaries grew and pressured for the re-categorizing of finance as “productive” and “value-creating”…. since all value had become determined only by price and markets.

In Chapter 5: The Rise of Casino Capitalism, Mazzucato explains exactly how finance extracts value. She also reveals the long-kept secrets of how the money-creation function formerly held by public authorities in most countries was ceded to private banks, so that today, most money is created out of thin air each time a bank creates a loan and that charging interest was made legal on this money created. This story is now in the hands of NGOs worldwide, and has led to such alternative views as A Green Bank of England, published by London-based NGO Positive Money.

Mazzucato does not delve into the critique of economic theories from ecological and thermodynamic perspectives, as in my The Politics of the Solar Age (1981,1988) and that by former Bridgewater hedge fund executive Nick Gogerty in his The Nature of Value (2012). All these views see money as merely a tracking and scoring system of no intrinsic value, which simply functions as a social protocol with network effects (see The Future of Money conference, University of Frankfurt, Nov. 2018). Gogerty now heads the crypto rewards currency Solar Coin to incentivize shifts to solar electricity.

In Chapter 6: Financialization of the Real Economy, Mazzucato outlines how finance overpowered Main Street …. reversing its former role in serving the needs of producers, to extracting value from the real economy. In Chapter 7: Extracting Value Through the Innovation Economy, she summarizes her analysis in The Entrepreneurial State of Silicon Valley and how the FAANGs were able to capture and patent the value of taxpayer-funded research and innovation on which their business models were built and still rely today.

Mazzucato’s conclusions revalue the role of public goods created in public sectors though democratic public choice, legislation and government investments: in R&D, infrastructure (roads, bridges, dams, education, health research, etc.) and how they were omitted from national accounts. Since GDP tracks cash flow in the economy, it does not contain an asset account, so these long-term public investments are expensed and only the debt they might have incurred is reflected. Thankfully, many efforts to reform this error in GDP are beginning to bear fruit.

This book is finding audiences among public officials in many countries and in agencies starved of funding, often by politicians citing economic theories and “laws” which Mazzucato, along with many others, has debunked. From justifications for QE to bail out financial failures; fossil fuel subsidies to favored tax treatment of capital gains; caps on Social Security tax on incomes … all are justified by theories shown to be erroneous or based on threadbare assumptions. Expect to hear arguments cited from this book on many political platforms in OECD countries in the years ahead.