The Value of Everything.

• Author: Hemphill, Thomas A.

The Value of Everything

Mariana Mazzucato

New York: PublicAffairs, 2018, 358 pp.

Mariana Mazzucato's The Value of Everything is premised upon her previous research into debunking myths about lone entrepreneurs and startups and ignoring a key actor of "first resort"--the state. Because of this "glaring omission," she believes that our economic theory of value creation is flawed, and this conceptual flaw is a major reason for the growing problem of wealth inequality in Western nations. Her question? Are we sure that much of what is passing for "value creation" is not just "value extraction" in disguise? She argues that this blurring of two different economic concepts is precisely what has occurred in post-World War II industrial economies.

Mazzucato, director of the Institute for Innovation and Public Purpose at University College London, defines value as "the production of goods and services" and focuses her narrative on the "wealth creators" and the forces that produce it ("the process"). By value extraction, Mazzucato identifies the "rent seekers": those industries that charge above the competitive price or where oligopolies block other companies from industry entry and thus retain their monopolistic advantage. Critics view this "predatory capitalism"--combining weak government antitrust enforcement and monopolistic practices--as the primary driver of why the 1 percent of the wealthiest in the United States have risen to power over the remaining 99 percent.

According to Mazzucato, understanding the history of the "production boundary"--and specifically what lies inside this boundary and outside of it--is critical to understanding how theories of value have evolved over the last 300 years. Inside this boundary has included all productive activities generated by the wealth creators, while outside the boundary lay the rent seekers. Such rent seekers benefit due to their monopolistic behavior or because wealth from the productive side is redistributed to them ("wealth extractors"). As Mazzucato explains in the early part of her book (Chapters 1 and 2), the boundary ("production frontier") between the "makers" and "takers" has not been fixed but has shifted due to social, political, and economic forces. These forces have influenced the development of government measures of growth of the economy. More important, Mazzucato argues that the production boundary began to blur in the latter half of the 19th century so that almost anything that could attract a price in the marketplace could successfully claim value, including financial services (but, interestingly, not government).

Chapter 3 reviews the arcane world of national income accounts. Today's national accounts include decisions about what constitutes value by blending any goods and services priced and exchanged legally. Mazzucato's criticism of this approach is that it now includes "politically pragmatic decisions" such as accommodating technological change in the information and communications technology (ICT) industry or new services and products offered in the over-inflated financial sector. This, however, leads to a flexible production boundary that allows former nonmembers of the "wealth creators" to lobby ("rent-seek") to move from the "unproductive" to the "productive" side, and their formerly value-extracting activities are then counted in national gross domestic product (GDP) (with few noticing this transition).

In Chapters 4, 5, and 6, Mazzucato evaluates the rapid growth in the financial services sector in the...