Once upon a time the value of something determined its price.  Today, price determines value. As capitalism began its journey out of mercantilism the questions of what was value, what was production and what was “rent-seeking,” –skimming off money with out adding to productivity– were long, and often, debated.  Since the de-regulation revolution in the 1970s when financial transactions which had never been counted in the GDP began to be, all discussion of what is value and what is productivity have disappeared.  So, when Lloyd Blankfein says that Goldman Sachs employees are among the most productive in the world, no one questions him; producers of what?

This is the heart of the very interesting and important argument made by Mariana Mazzucato in her recent (2018) book, The Value of Everything: Making and Taking in the Global Economy. In not too many pages we get a capsule history of economic thought, and behavior.  We come to understand that until recently the lines between productive and non-productive activity while not bright and sharp, were at least acknowledged and incorporated into economic theories and models.  We see how the “financialization” of the macro economy began to be practiced by non-financial producers; Apple, Google and others, while still producing things of value, began to use their profits, not to invest and produce more, but to buy back shares and reward investors so that the price of shares increased, while the productive infrastructure diminished.

There may be too much economics for some, but the story is not a “dreary” one;  it is as much about social and political choices, decision-making and informed understanding, the essence of a functioning democracy.  We cover our ears and shut our eyes at our own peril.  Two particularly interesting chapters are “The Rise of Casino Capitalism” and “Undervaluing the Public Sector.”  Government she argues, with much data, has been grievously slandered by the free-market orthodox, again since the 70s, and especially the Reagan revolution.  In case after case, government, far from being the kudzu strangling innovation and growth of the private sector, has been the funder and initiator of great technological and societal change.

For short introductory pieces you can find Mazzucato on YouTube here (7 min), here (47 min) and here (14 min) on the government as investor, innovator, and risk-taker.  Here she is in a discussion with economist Russ Roberts.

Though an Italian, Mazzucato will sound very American — from a childhood living in Princeton N.J., with her fusion physicist father, a case in point of how the government — the U.S. Department of Energy– funds innovative work which Venture Capitalists do not want to touch.