Mariana Mazzucato: What Is Economic Value, and Who Creates It?

Yves here. We’re fans of Mariana Mazzucato’s work. Her book, The Entrepreneurial State, documented the critical role the US government has played in undertaking and sponsoring basic and other research that was critical to the development of new industries and products, and how, contrary to popular opinion, it supported projects in an adaptive and flexible way. Here, she kneecaps the idea of individuals as “value” or job creators by going though historical views on this question and describing how the rise of neoclassical economics radically changed conventional thinking.

Mazzucato is a skilled speaker so I think you will enjoy this TED talk. You’ll see the transcript provides time markers. You can also view this speech at TED.

Value creation. Wealth creation. These are really powerful words. Maybe you think of finance, you think of innovation, you think of creativity. But who are the value creators? If we use that word, we must be implying that some people aren’t creating value. Who are they? The couch potatoes? The value extractors? The value destroyers? To answer this question, we actually have to have a proper theory of value. And I’m here as an economist to break it to you that we’ve kind of lost our way on this question.

00:36
Now, don’t look so surprised. What I mean by that is, we’ve stopped contesting it. We’ve stopped actually asking really tough questions about what is the difference between value creation and value extraction, productive and unproductive activities.

00:50
Now, let me just give you some context here. 2009 was just about a year and a half after one of the biggest financial crises of our time, second only to the 1929 Great Depression, and the CEO of Goldman Sachs said Goldman Sachs workers are the most productive in the world. Productivity and productiveness, for an economist, actually has a lot to do with value. You’re producing stuff, you’re producing it dynamically and efficiently. You’re also producing things that the world needs, wants and buys. Now, how this could have been said just one year after the crisis, which actually had this bank as well as many other banks — I’m just kind of picking on Goldman Sachs here — at the center of the crisis, because they had actually produced some pretty problematic financial products mainly but not only related to mortgages, which saw many thousands of people actually lose their homes. In 2010, in just one month, September, 120,000 people lost their homes through the foreclosures of that crisis. Between 2007 and 2010, 8.8 million people lost their jobs. The bank also had to then be bailed out by the US taxpayer for the sum of 10 billion dollars. We didn’t hear the taxpayers bragging that they were value creators, but obviously, having bailed out one of the biggest value-creating productive companies, perhaps they should have.

02:11
What I want to do next is kind of ask ourselves how we lost our way, how it could be, actually, that a statement like that could almost go unnoticed, because it wasn’t an after-dinner joke; it was said very seriously.

02:25
So what I want to do is bring you back 300 years in economic thinking, when, actually, the term was contested. It doesn’t mean that they were right or wrong, but you couldn’t just call yourself a value creator, a wealth creator. There was a lot of debate within the economics profession. And what I want to argue is, we’ve kind of lost our way, and that has actually allowed this term, “wealth creation” and “value,” to become quite weak and lazy and also easily captured.

02:51
OK? So let’s start — I hate to break it to you — 300 years ago. Now, what was interesting 300 years ago is the society was still an agricultural type of society. So it’s not surprising that the economists of the time, who were called the Physiocrats, actually put the center of their attention to farm labor. When they said, “Where does value come from?” they looked at farming. And they produced what I think was probably the world’s first spreadsheet, called the “Tableau Economique,” and this was done by François Quesnay, one of the leaders of this movement. And it was very interesting, because they didn’t just say, “Farming is the source of value.”

03:27
They then really worried about what was happening to that value when it was produced. What the Tableau Economique does — and I’ve tried to make it a bit simpler here for you — is it broke down the classes in society into three. The farmers, creating value, were called the “productive class.” Then others who were just moving some of this value around but it was useful, it was necessary, these were the merchants; they were called the “proprietors.” And then there was another class that was simply charging the farmers a fee for an existing asset, the land, and they called them the “sterile class.” Now, this is a really heavy-hitting word if you think what it means: that if too much of the resources are going to the landlords, you’re actually putting the reproduction potential of the system at risk. And so all these little arrows there were their way of simulating — again, spreadsheets and simulators, these guys were really using big data — they were simulating what would actually happen under different scenarios if the wealth actually wasn’t reinvested back into production to make that land more productive and was actually being siphoned out in different ways, or even if the proprietors were getting too much.

04:31
And what later happened in the 1800s, and this was no longer the Agricultural Revolution but the Industrial Revolution, is that the classical economists, and these were Adam Smith, David Ricardo, Karl Marx, the revolutionary, also asked the question “What is value?” But it’s not surprising that because they were actually living through an industrial era with the rise of machines and factories, they said it was industrial labor. So they had a labor theory of value. But again, their focus was reproduction, this real worry of what was happening to the value that was created if it was getting siphoned out.

05:03
And in “The Wealth of Nations,” Adam Smith had this really great example of the pin factory where he said if you only have one person making every bit of the pin, at most you can make one pin a day. But if you actually invest in factory production and the division of labor, new thinking — today, we would use the word “organizational innovation” — then you could increase the productivity and the growth and the wealth of nations. So he showed that 10 specialized workers who had been invested in, in their human capital, could produce 4,800 pins a day, as opposed to just one by an unspecialized worker. And he and his fellow classical economists also broke down activities into productive and unproductive ones.

05:43
(Laughter)

05:44
And the unproductive ones weren’t — I think you’re laughing because most of you are on that list, aren’t you?

05:49
(Laughter)

05:51
Lawyers! I think he was right about the lawyers. Definitely not the professors, the letters of all kind people. So lawyers, professors, shopkeepers, musicians. He obviously hated the opera. He must have seen the worst performance of his life the night before writing this book. There’s at least three professions up there that have to do with the opera.

06:10
But this wasn’t an exercise of saying, “Don’t do these things.” It was just, “What’s going to happen if we actually end up allowing some parts of the economy to get too large without really thinking about how to increase the productivity of the source of the value that they thought was key, which was industrial labor.

06:26
And again, don’t ask yourself is this right or is this wrong, it was just very contested. By making these lists, it actually forced them also to ask interesting questions. And their focus, as the focus of the Physiocrats, was, in fact, on these objective conditions of production. They also looked, for example, at the class struggle. Their understanding of wages had to do with the objective, if you want, power relationships, the bargaining power of capital and labor. But again, factories, machines, division of labor, agricultural land and what was happening to it.

06:59
So the big revolution that then happened — and this, by the way, is not often taught in economics classes — the big revolution that happened with the current system of economic thinking that we have, which is called “neoclassical economics,” was that the logic completely changed. It changed in two ways. It changed from this focus on objective conditions to subjective ones.

07:21
Let me explain what I mean by that. Objective, in the way I just said. Subjective, in the sense that all the attention went to how individuals of different sorts make their decisions. OK, so workers are maximizing their choices of leisure versus work. Consumers are maximizing their so-called utility, which is a proxy for happiness, and firms are maximizing their profits. And the idea behind this was that then we can aggregate this up, and we see what that turns into, which are these nice, fancy supply-and-demand curves which produce a price, an equilibrium price. It’s an equilibrium price, because we also added to it a lot of Newtonian physics equations where centers of gravity are very much part of the organizing principle. But the second point here is that that equilibrium price, or prices, reveal value.

08:08
So the revolution here is a change from objective to subjective, but also the logic is no longer one of what is value, how is it being determined, what is the reproductive potential of the economy, which then leads to a theory of price but rather the reverse: a theory of price and exchange which reveals value.

08:26
Now, this is a huge change. And it’s not just an academic exercise, as fascinating as that might be. It affects how we measure growth. It affects how we steer economies to produce more of some activities, less of others, how we also remunerate some activities more than others. And it also just kind of makes you think, you know, are you happy to get out of bed if you’re a value creator or not, and how is the price system itself if you aren’t determining that?

08:52
I mentioned it affects how we think about output. If we only include, for example, in GDP, those activities that have prices, all sorts of really weird things happen. Feminist economists and environmental economists have actually written about this quite a bit. Let me give you some examples. If you marry your babysitter, GDP will go down, so do not do it. Do not be tempted to do this, OK? Because an activity that perhaps was before being paid for is still being done but is no longer paid.

09:21
(Laughter)

09:22
If you pollute, GDP goes up. Still don’t do it, but if you do it, you’ll help the economy. Why? Because we have to actually pay someone to clean it.

09:29
Now, what’s also really interesting is what happened to finance in the financial sector in GDP. This also, by the way, is something I’m always surprised that many economists don’t know. Up until 1970, most of the financial sector was not even included in GDP. It was kind of indirectly, perhaps not knowingly, still being seen through the eyes of the Physiocrats as just kind of moving stuff around, not actually producing anything new. So only those activities that had an explicit price were included. For example, if you went to get a mortgage, you were charged a fee. That went into GDP and the national income and product accounting. But, for example, net interest payments didn’t, the difference between what banks were earning in interest if they gave you a loan and what they were paying out for a deposit. That wasn’t being included.

10:15
And so the people doing the accounting started to look at some data, which started to show that the size of finance and these net interest payments were actually growing substantially. And they called this the “banking problem.” These were some people working inside, actually, the United Nations in a group called the Systems of National [Accounts], SNA. They called it the “banking problem,” like, “Oh my God, this thing is huge, and we’re not even including it.” So instead of stopping and actually making that Tableau Economique or asking some of these fundamental questions that also the classicals were asking about what is actually happening, the division of labor between different types of activities in the economy, they simply gave these net interest payments a name. So the commercial banks, they called this “financial intermediation.” That went into the NIPA accounts. And the investment banks were called the “risk-taking activities,” and that went in. In case I haven’t explained this properly, that red line is showing how much quicker financial intermediation as a whole was growing compared to the rest of the economy, the blue line, industry.

11:14
And so this was quite extraordinary, because what actually happened, and what we know today, and there’s different people writing about this, this data here is from the Bank of England, is that lots of what finance was actually doing from the 1970s and ’80s on was basically financing itself: finance financing finance. And what I mean by that is finance, insurance and real estate. In fact, in the UK, something like between 10 and 20 percent of finance finds its way into the real economy, into industry, say, into the energy sector, into pharmaceuticals, into the IT sector, but most of it goes back into that acronym, FIRE: finance, insurance and real estate. It’s very conveniently called FIRE.

11:55
Now, this is interesting because, in fact, it’s not to say that finance is good or bad, but the degree to which, by just having to give it a name, because it actually had an income that was being generated, as opposed to pausing and asking, “What is it actually doing?” — that was a missed opportunity.

12:13
Similarly, in the real economy, in industry itself, what was happening? And this real focus on prices and also share prices has created a huge problem of reinvestment, again, this real attention that both the Physiocrats and the classicals had to the degree to which the value that was being generated in the economy was in fact being reinvested back in. And so what we have today is an ultrafinancialized industrial sector where, increasingly, a share of the profits and the net income are not actually going back into production, into human capital training, into research and development but just being siphoned out in terms of buying back your own shares, which boosts stock options, which is, in fact, the way that many executives are getting paid. And, you know, some share buybacks is absolutely fine, but this system is completely out of whack. These numbers that I’m showing you here show that in the last 10 years, 466 of the S and P 500 companies have spent over four trillion on just buying back their shares. And what you see then if you aggregate this up at the macroeconomic level, so if we look at aggregate business investment, which is a percentage of GDP, you also see this falling level of business investment. And this is a problem.

13:27
This, by the way, is a huge problem for skills and job creation. You might have heard there’s lots of attention these days to, “Are the robots taking our jobs?” Well, mechanization has for centuries, actually, taken jobs, but as long as profits were being reinvested back into production, then it didn’t matter: new jobs appeared. But this lack of reinvestment is, in fact, very dangerous.

13:48
Similarly, in the pharmaceutical industry, for example, how prices are set, it’s quite interesting how it doesn’t look at these objective conditions of the collective way in which value is created in the economy. So in the sector where you have lots of different actors — public, private, of course, but also third-sector organizations — creating value, the way we actually measure value in this sector is through the price system itself. Prices reveal value. So when, recently, the price of an antibiotic went up by 400 percent overnight, and the CEO was asked, “How can you do this? People actually need that antibiotic. That’s unfair.” He said, “Well, we have a moral imperative to allow prices to go what the market will bear,” completely dismissing the fact that in the US, for example, the National Institutes of Health spent over 30 billion a year on the medical research that actually leads to these drugs. So, again, a lack of attention to those objective conditions and just allowing the price system itself to reveal the value.

14:46
Now, this is not just an academic exercise, as interesting as it may be. All this really matters [for] how we measure output, to how we steer the economy, to whether you feel that you’re productive, to which sectors we end up helping, supporting and also making people feel proud to be part of. In fact, going back to that quote, it’s not surprising that Blankfein could say that. He was right. In the way that we actually measure production, productivity and value in the economy, of course Goldman Sachs workers are the most productive. They are in fact earning the most. The price of their labor is revealing their value. But this becomes tautological, of course.

15:24
And so there’s a real need to rethink. We need to rethink how we’re measuring output, and in fact there’s some amazing experiments worldwide. In New Zealand, for example, they now have a gross national happiness indicator. In Bhutan, also, they’re thinking about happiness and well-being indicators. But the problem is that we can’t just be adding things in. We do have to pause, and I think this should be a moment for pause, given that we see so little has actually changed since the financial crisis, to make sure that we are not also confusing value extraction with value creation, so looking at what’s included, not just adding more, to make sure that we’re not, for example, confusing rents with profits. Rents for the classicals was about unearned income. Today, rents, when they’re talked about in economics, is just an imperfection towards a competitive price that could be competed away if you take away some asymmetries.

16:16
Second, we of course can steer activities into what the classicals called the “production boundary.” This should not be an us-versus-them, big, bad finance versus good, other sectors. We could reform finance. There was a real lost opportunity in some ways after the crisis. We could have had the financial transaction tax, which would have rewarded long-termism over short-termism, but we didn’t decide to do that globally. We can. We can change our minds. We can also set up new types of institutions. There’s different types of, for example, public financial institutions worldwide that are actually providing that patient, long-term, committed finance that helps small firms grow, that help infrastructure and innovation happen.

16:56
But this shouldn’t just be about output. This shouldn’t just be about the rate of output. We should also as a society pause and ask: What value are we even creating? And I just want to end with the fact that this week we are celebrating the 50th anniversary of the Moon landing. This required the public sector, the private sector, to invest and innovate in all sorts of ways, not just around aeronautics. It included investment in areas like nutrition and materials. There were lots of actual mistakes that were done along the way. In fact, what government did was it used its full power of procurement, for example, to fuel those bottom-up solutions, of which some failed. But are failures part of value creation? Or are they just mistakes? Or how do we actually also nurture the experimentation, the trial and error and error and error?

17:45
Bell Labs, which was the R and D laboratory of AT and T, actually came from an era where government was quite courageous. It actually asked AT and T that in order to maintain its monopoly status, it had to reinvest its profits back into the real economy, innovation and innovation beyond telecoms. That was the history, the early history of Bell Labs. So how we can get these new conditions around reinvestment to collectively invest in new types of value directed at some of the biggest challenges of our time, like climate change? This is a key question.

18:19
But we should also ask ourselves, had there been a net present value calculation or a cost-benefit analysis done about whether or not to even try to go to the Moon and back again in a generation, we probably wouldn’t have started. So thank God, because I’m an economist, and I can tell you, value is not just price.

18:41
Thank you.

18:42
(Applause)

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23 comments

  1. Sound of the Suburbs

    GDP tells us what real wealth creation is.

    In the 1930s, they pondered over where all that wealth had gone to in 1929 and realised inflating asset prices doesn’t create real wealth, they came up with the GDP measure to track real wealth creation in the economy.

    The transfer of existing assets, like stocks and real estate, doesn’t create real wealth and therefore does not add to GDP. The real wealth creation in the economy is measured by GDP.

    Inflated asset prices aren’t real wealth, and this can disappear almost over-night, as it did in 1929 and 2008.
    Real wealth creation involves real work, producing new goods and services in the economy.

    Neoclassical economics predates the GDP measure and is all about the markets and capital accumulation.
    They believed in the markets in the 1920s and after 1929 they had to reassess everything, which is when they invented the GDP measure.

    The fictitious financial wealth in real estate keeps disappearing, but policymakers have been very slow to notice the evidence piling up around them.
    1990s – UK, US (S&L), Canada (Toronto), Scandinavia, Japan
    2000s – Iceland, Dubai, US (2008)
    2010s – Ireland, Spain, Greece
    Get ready to put Australia, Canada, Norway, Sweden and Hong Kong on the list.
    Now policymakers know what GDP is, they can understand the problem.

    Reply
    1. Sound of the Suburbs

      “Neoclassical economics predates the GDP measure and is all about the markets and capital accumulation”.

      Zimbabwe has been so successful at capital accumulation they have got hyper-inflation.
      That’s what happens with too much money.

      You can just print money, the real wealth in the economy lies somewhere else.
      Alan Greenspan tells Paul Ryan the Government can create all the money it wants and there is no need to save for pensions.
      https://www.youtube.com/watch?v=DNCZHAQnfGU
      What matters is whether the goods and services are there for them to buy with that money. That’s where the real wealth in the economy lies.
      Money has no intrinsic value; its value comes from what it can buy.

      Zimbabwe has too much money in the economy relative to the goods and services available in that economy. You need wheelbarrows full of money to buy anything.
      You can just print money, its real wealth creation that is the important thing and it’s measured by GDP.

      Reply
    2. Sound of the Suburbs

      Messing about transferring financial assets around.

      Watch this video of the S&L crisis, as the Americans learn the art of making money by just transferring financial assets around and inflating asset prices with bank credit.
      https://www.youtube.com/watch?v=UwFXvc1rJDw

      Bank loans create money out of nothing.
      https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf
      Money and debt come into existence together and disappear together like matter and anti-matter.

      The speculators pocket the money, and the debt builds up in the S&Ls until the ponzi scheme collapses.
      The limited liability company is a key component.
      The debt is owed by these limited liability companies to the S&Ls, so as asset prices collapse they go bust, and the S&L’s have the debt that won’t be repaid.
      The speculators will have taken most of the money out of these companies as they go along.

      Nothing appears to be wrong as the bubble inflates.
      The S&Ls and limited liability companies have assets on their books covering their loans.
      When the bubble bursts, asset prices collapse rapidly and those assets no longer cover those loans.
      The limited liability companies go bust leaving the S&Ls to carry the can.
      They S&L’s can’t repossess those assets and sell them to recoup the money they have lent out.
      The S&L’s become insolvent.
      US taxpayers then bail out the bust S&Ls.

      They have had a long time to learn how this little game works by 2008.
      “It’s nearly $14 trillion pyramid of super leveraged toxic assets was bult on the back of $1.4 trillion of US sub-prime loans, and dispersed throughout the world” All the Presidents Bankers, Nomi Prins.
      When this little lot lost almost all its value overnight, the Western banking system became insolvent.
      Wall Street can turn a normal asset price bubble into something that will take out the global economy using leverage.

      Reply
  2. cnchal

    Too bad Mariana just didn’t come right out and tell it like it is, with regard to Goldman 666. It’s frauds were handsomely rewarded because it is the POLITICAL economy. Mr Market was prevented from doing his jawb of taking Goldman out behind the woodshed and shooting it dead to put it out of everone’s misery through political intervention.

    Supposedly fraud is illegal, except for Wall Street where it is standard operating procedure. The price paid is high, the value is less than zero.

    Reply
  3. Samuel Conner

    Don’t have time at the moment to read the whole thing, but I noticed the early mention of Marx’s labor theory of value. This is derided by present-day mainstream micro-founded economists (I don’t lump MM in that group) but it makes sense at an aggregate level. If people can’t purchase all the output, the unsold residue has very little value. In aggregate (modulo profit extraction, which admittedly is a bigger thing in recent decades), wages purchase output. That’s a labor theory of price.

    Reply
  4. Nels Nelson

    This was an excellent presentation. Fortunately I was exposed to these issues some 40 years ago in my undergraduate and graduate environmental economic courses with Herman Daly. Since then whenever the opportunity would present itself I would interject some of what I had learned and Mariana discussed only to be treated to blank stares or get accused of being too philosophical.

    Professor Daly explained to the class the shortcomings of GDP and discussed why it should be replaced with a measure he called GPI, Genuine Progress Indicator. Economic activity produces both goods and bads. Whereas now they are all added together, the bads must be subtracted from the goods. Daly promoted the concept of the “steady state economy’ given that infinite growth on a finite planet is unsustainable.

    Capitalism and its process of accumulation is built on a foundation of first exclusion, privitizing public resources, then extraction and exploitation. Extraction is the process of pulling value out of a resource. For Marx, the last stage of the accumulation process was finacialization wherein finance functions through its own mode of extraction. During this mode financial instruments are tools of speculation and create merely ‘fictional’ values. Finance and debt relations are means to extract values that are produced socially, outside of finance capital’s direct management. Think about the term “data mining”. Traditional extractive operations have migrated to social domains. Accumulation by means of social-media platforms involve not only gathering and processing the data provided by users but creating algorithmic means to capitalize on the intelligence, knowledge and social relations they bring.

    In my view, Mariana’s talk will fly over most heads but I will enthusiastically pass it along.

    Reply
  5. Ignacio

    Though financial activities and their role in value creation vs rent extraction are often discussed here I miss other service whose role in the economy is dubious IMO: advertising. Advertising may help a company reaching consumers but by itself doesn’t create value except for what is called brand value. But is brand value a real one of nothing more than other way of rent extraction? According to the site statista global advertising accounted in 2018 for 560 billion dollars of which almost half was spent in US markets. Advertising spending as a % of GDP is not homogeneous around the world and in the US reaches levels well above any other market. Advertising must be more sophisticated and aggressive in the US including probably all kinds of phishing already invented. A lot of rent extraction and very small added value if any. So, there is not only over-financialization but also over-advertising and the more money spent on this, the less productivity IMO.

    Reply
  6. Susan the Other

    So she’s Mazzucato. She’s really good. Thanks for this one. Pretty clear that it’s not capitalism if nobody can recapitalize their equipment or even make a profit if they do. She didn’t really talk about capitalism – just the creation of value. Value isn’t so hard to pin down. It isn’t the price of something because monopolies can extort the economy until it is bloodless. Or creating disasters because they are good for the economy. The FIRE sector has just been financing itself using their monopoly on money and soft targets. The great causes are few and far between. But they are the creators of value. Surviving the paleolithic was one. The Cold War and the Moon Shot and the race for technology was another. The reason being is that we wanted to survive – avoid another world war. But consequences, consequences. Now we have a devastated planet. Because we never did control externalizing and extracting. So that’s our next great cause. So we’ll mobilize to fix it and then we will learn to be good stewards of the planet (cease to externalize, profiteer and pollute) …. and then? Then we’ll really have to change finance altogether. Finally giving a definition to “value”.

    Reply
  7. lyman alpha blob

    I see what she’s getting at and agree 100% with her conclusion that value is not just price. But I still have a hard time grokking this notion of value at all.

    I’m about 1/3 of the way through Against the Gods: The Remarkable Story of Risk right now and the author discusses the how the theory of probability was developed by mathematicians, at first as a way to calculate odds for gaming. So far so good. Then he goes on to describe how the insurance industry developed by using statistics to determine life expectancy, etc. and how the idea of value and utility came into play. Now the author is not the most lucid writer I’ve ever run across, but it seems pretty clear that this idea of value is a largely subjective notion that can’t really be quantified, yet that hasn’t stopped economists from trying to do so for a couple centuries now, much to the detriment of 99% of us.

    This talk explains what value isn’t or should not be, but I have to wonder why the concept is necessary at all. The example of the Goldman bankers’ “value” being tautological was a good one and it would seem to apply in all cases. The value of something is what it is because a person thinks it is, not because of any inherent objective qualities.

    Or in the immortal words of Mr. Lebowski – “Yeah, well, you know, that’s just like your opinion, man.”

    Reply
    1. eg

      I believe that part of Mazzucato’s project is to debunk the myth that “value” and “price” are the same thing — a myth propagated by the marginal revolutionists and their neoliberal fellow travellers. In order to do so, I think she is taking pains to redefine value in such a way as to expose orthodox economics for the sham that it is.

      You can expect vicious resistance to her project from the usual suspects …

      Reply
    2. @pe

      Entropy or Shannon information: S = \sum_i P_i log P_i
      Probablity: P_i = exp(-E_i/kT) / \sum_j exp(-E_j / kT)

      RIght? Probability, Energy and Entropy / Information are all linked together. No one would say that energy “is just subjective and unquantifiable” — it’s a real quantifiable thing. But the probability calculated here depends on the distinguishable states and thus the information depends on the history of the observer and it’s ability to make predictions about states.

      Thus the linked equations are subjective but quantifiable.

      I think everyone would agree that “value” has something to do with “energy” — and the concept of “socially useful labor” comes very close to pointing in the direction that you would measure value in the energy used, but measured in terms of relevant exploitable energy of the system after labor. We could also talk about it in terms of the change in entropy of the system (the world), as it can be measured by the computing machines inside of it (aka, humans).

      So, in a fuzzy and imprecise bloggy way, I’m trying to say that the Lebowski quote is crap here — there is an objectively measurable kind of value that is relative to the subjective nature of the relevant computing machines. To the extent that these computing machines have a common informational history, there should even be fairly unique and globally agreeable measures about what is valuable. Not universally unique, but unique to all the machines that have shared information and capacity to interpret or decode a common environment.

      Reply
    3. Jason

      The ephemeral nature of value was why the neoclassical economists of the late 1800s turned away from questions about objective value. Mazzucato laments this turn, but she also understands that there was a good epistemological reason for it. That’s why she’s not offering a solution for “what is value”, but is just imploring folks to think about the question.

      Reply
  8. inode_buddha

    Value is created by actual productive work because a persons time is not free, nor are their living expenses. Anything else (the FIRE sector) is just rearranging the deck chairs on the Titanic.

    Reply
  9. Summer

    RE: “Bell Labs, which was the R and D laboratory of AT and T, actually came from an era where government was quite courageous. It actually asked AT and T that in order to maintain its monopoly status, it had to reinvest its profits back into the real economy, innovation and innovation beyond telecom…”

    Makes me think of financialization and Netflix. They received their financing and valuation by being conflated with “tech” companies and ATT is more tech than they’ve ever been and is getting more into streaming.
    The over-financialization breeds hype.

    Reply
  10. JEHR

    I know the speaker did not say it outright, but I think that all non-productive valuation in the financial sector should be omitted from GDP calculations. Make a little footnote on each financial model and every financial chart for the banks where they can laud it over each other and giggle over how many billionaires they have created today.

    I would like to see my government start our banking system over again and have new banks created that are not given the opportunity to make money from gambling with deposited money. If the money is not loaned for productive purposes (r & d, labour training, infrastructure, etc), then it should never be included in GDP. Non-productive money can be put in the shadow banking system where it isn’t allowed to cross over into the productive sector. What if the stock market were put in the shadow part of our system too? Only farmers who need to hedge on their crops in order to stay in business should be able to buy insurance. We do not need any more AIGs insuring bad non-productive projects.

    Where do we find bankers that are honest who want to work for the betterment of the human race? Are they gone forever?

    Reply
    1. inode_buddha

      I was thinking about it earlier, wondering “Hey, what about all the money they’re supposed to be making off interest rates, transaction fees, and insurance premiums?”

      I decided that I think the FIRE sector should be banned from issuing stock. If they can’t make it from the interest rate spreads, transaction fees, and insurance premiums, then maybe they shouldn’t be in business.

      Reply
  11. Anarcissie

    I think value has to be examined very fundamentally, down to the level of biology, physics, sociology, and information theory (and whatever I’m missing). And certainly politics (by which I mean the theory and practice of determining whose will, in a community, will prevail, and how). There is no value without an (or actually, many an) evaluator and while evaluators differ something can be reasonably said about large sets of evaluators, for example, almost all of them think they need to eat, whereas only a subset think they need to possess gold or a good job.

    Much of what I read slips past these questions into something the writer is comfortable with, for example, the Physiocrats were comfortable with farming, Smith with trading, and so forth, and thus economics, cast adrift, becomes this very labile slush of truth and propaganda we see today. I’m glad to see someone trying to get at the problem.

    Reply
  12. rosemerry

    I have Mariana’s book from the Book Depository and it is called “The Value of Everything”, very clearly explaining why value is tagged with a moral judgment. This is so rare now but her work has been widely praised. The NC readers are those who would be most likely to applaud it.

    Reply

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