Mariana Mazzucato is a professor of economics at University College London. She came to prominence following the publication of her 2013 book, The Entrepreneurial State, in which she argued for a bigger economic role for the state, claiming that politicians and bureaucrats are more innovative than people risking their own money. According to the Financial Times, she contributed to the Labour Party’s 2017 manifesto and to the Conservatives’ new industrial strategy.
Now she has published another book, The Value of Everything: Making and Taking in the Global Economy. Her central thesis is that many people have become rich over recent decades not by creating value but by extracting it – financiers and internet entrepreneurs, among others. We have failed to see this because we are wedded to the false idea that “price determines value”.
More specifically, we are fixated on the “marginalist” theory developed in the late 19th century by economists such as Stanley Jevons and Alfred Marshall (to name just the main English contributors).
Marginalism is the idea that the price of a good is determined by its “marginal utility” – that is, by the subjective value placed on consuming the next or marginal unit of the good (which declines as the quantity increases) and by its value to the marginal supplier. The market price is found when the most the marginal buyer is willing to pay is equal to the least the marginal supplier is willing to accept. (Which should make it clear that, contrary to Mazzucato’s claim, on this theory, value determines price.)
Refuting marginalism is the main task of Mazzucato’s book, not only because its falsity is central to her argument, but because of its near unquestioned status within economics. Anyone who studies Econ 101 and is taught about prices being determined by supply and demand is imbibing the theory. Yet it is difficult to even locate Mazzucato’s attempted refutation.