Thursday, May 24, 2018

Mariana Mazzucato — Capitalism's greatest weakness? It confuses price with value

In my latest book, The Value of Everything, I have argued that such critiques are important but will remain powerless – in their ability to bring about real reform of the economic system – until they become firmly grounded in a discussion about the processes by which economic value is created. It is not enough to argue for less value extraction and more value creation. First, ‘value’, a term that once lay at the heart of economic thinking, must be revived and better understood.

Value has gone from being a category at the core of economic theory, tied to the dynamics of production (the division of labour, changing costs of production), to a subjective category tied to the ‘preferences’ of economic agents. Many ills, such as stagnant real wages, are interpreted in terms of the ‘choices’ that particular agents in the system make, for example unemployment is seen as related to the choice that workers make between working and leisure. And entrepreneurship – the praised motor of capitalism – is seen as a result of such individualized choices rather than of the productive system surrounding entrepreneurs – or, to put it another way, the fruit of a collective effort. At the same time, price has become the indicator of value: as long as a good is bought and sold in the market, it must have value. So rather than a theory of value determining price, it is the theory of price that determines value...
Much more. Good article.

Mariana Mazzucato is becoming an influencer.

World Economic Forum
Capitalism's greatest weakness? It confuses price with value
Mariana Mazzucato | Professor in the Economics of Innovation and Public Value, University College London


Noah Way said...

Exactly. And in the most ironic ways.

For example: the most expensive stuff is always the best, especially when you get it below cost.

Konrad said...

PART 1 of 2

Capitalism's greatest weakness is that it confuses price with value.

Agreed. When everyone and everything is valued in terms of dollars, no amount of profit can ever be enough. Greed expands until it destroys the world.

At the other extreme is communism, in which people, things, and ideas only have value to the extent that they serve the group.

We need a balance between the two extremes.

Robert Owen (1771–1858) used his textile factories to conduct experiments in economics, and he concluded that this balance becomes unattainable when any group grows past a certain size.

German sociologist Robert Michels (1876 – 1936) agreed, saying that all large organizations become oligarchies, regardless of how democratic they were when they started. All organizations become stratified. All power is stolen by rich parasites that control their host society by controlling who has access to information, and what the society’s dominant narrative is. Beneath the parasitical leaders, the host society is rendered helpless by apathy and bickering. Attempts to make the oligarchs accountable are prone to fail, since power includes the ability to reward loyalty to the oligarchs. Thus, Democracy is a façade that oligarchs use to conceal and legitimize their tyranny.

Getting back to Mariana Mazzucato, she says that a society’s economics discourse is determined by the society’s understanding of “value.”

Yes. Today in America, fraud, extortion, and parasitism are said to have “value.” Rent extraction and debt slavery are included in “GDP.”

Today, says Mazzucato , “as long as a good is bought and sold in the market, it must have value. So rather than a theory of value determining price, it is the theory of price that determines value.”

Yes, and the neoliberal narrative has become so rampant and pervasive that “even ‘progressives’ critiquing the system sometimes unintentionally espouse it.”

Continued below…

Konrad said...

PART 2 of 2

Also rampant is our inversion of reality.

In today’s Western societies…

Traitors call themselves “patriots.”
Victimizers call themselves “victims.”
Militants call themselves “moderates.”
Fascists call themselves “anti-fascists.”
Warmongers call themselves “humanitarians.”
Fanatics call themselves “crusaders for tolerance.”
Financial parasites (takers) call themselves “makers.”
…and so on.

All empires undergo this Orwellian inversion of reality when they die. The adult becomes a demented infant.

War is “peace.”
Lies are “truth.”
Truth is “fake news.”
Slavery is “freedom.”
Ignorance is “wisdom.”
Honesty is “hate crime.”
Aggression is “defensive.”
Genocide is “humanitarian.”
Defensive actions are “terrorism.”
People desperate for work are “lazy.”
A debt slave is “well-adjusted to society.”
Value extraction becomes “value creation.”
Refugees from the empire’s violence are “opportunistic invaders.”

As this dementia spreads, the peasants become cannibals (e.g. the #MeToo movement, which seeks to destroy all males). The lower classes revel in mass confusion (e.g. gender dysphoria) and mass delusion (e.g. all men are rapists). The elites no longer bother to lie. False flags are no longer necessary.

Birthrates in the lower classes fall, causing natives to imagine that incoming refugees are “breeding like cockroaches.” Inequality becomes racial, economic, and even sexual. That is, in a dying empire, the gap continually widens between people (especially males) who can get sex, and people who cannot. More and more males become “incels” (involuntarily celibate) while more and more females become single mothers. Men become feminized. Women become masculine. Thieves on the sinking ship steal everything they see (including the lifeboats) and then escape, leaving the peasants to bicker as they drown.

All empires follow more or less this same pattern when they die.

Mariana Mazzucato: “Only with a clear debate about value can rent-extracting activities in every sector, including the public one, be better identified and deprived of political and ideological strength.”

I doubt that American society is capable of having such a debate. Seems too late. Hopefully I am in error.

Kaivey said...

Below is an interesting video by Stefan Verstappen.
Sadly, Stefan Verstappen is a libertarian and a survivalist who blames the fall of civilizations on big government rather than on the mega rich oligarchs who get to control the government.

New countries form from the villages and towns that came into being from more early primitive societies. An emperor the rules who is benign and fair. A thriving middleclass develops with people running family businesses and from these eventually medium and large businesses develop. Them a new merchant class develops, but some people from the merchant class eventually get to become very rich indeed and start to dominate the government reducing taxes on themselves and pushing more onto ordinary people. Their large businesses also destroy more and more of the small businesses. Eventually the middleclass collapses and as people have less money to spend then society collapses as well.

The above is extremely simplified leaving out all the wars that make the oligarchs so rich, and were the emperors and his ruling elite ever benign? But Stefan Verstappen video is very interesting just the same.

Historical Cycles: Are we doomed to repeat the past?

Ralph Musgrave said...

Mazzucato is not saying anything new. She evidently has not caught up with the fact that we have for at least a century had big doubts that the free market price for everything is an accurate measure of value. That's why most countries devote about 20%-50% of GDP to public spending! Doh!

Education for kids is not sold at its free market price: it's available for free in most countries. And alcoholic drinks are not available at free market price: the retail price for whiskey, vodka etc is several times its free market price. Quite right.

To repeat, she is saying nothing new. The only argument (and we'll be arguing about this till the end of time) is EXACTLY which products should be available at below or above market price, exactly how banks should be regulated, etc etc.

Tom Hickey said...

@ Ralph

MM says she is saying nothing new. Value as price-determined based on preference (choice) as revealed in markets is neoclassical. Classical econ was about value rather than price and it was concerned with addressing economic rents. Classical culminated in Marx, on one hand, and Vebeln (Institutionalism) on the other.

Without a proper conception of value, economic rent is in effect eliminated from economic theory, which was largely affected by John Bates Clark — yes, he of the medal.

With a proper conception of value, value creation, which is both economic and social value, is distinguished from value extraction as economic rent and negative externality. Value extraction is systemic parasitism, and over time weakens and kills the host system. This is what happened to feudalism as an economic system, for example, although it took millennia owing to the power structure that supported it through force.

Marx's theory of value theory of labor is about how productive work creates value while passive ownership contributes nothing. Passive owners extract value from value created by productive work in excess of the value created through wage labor, the price mechanism and markets-based exchange.

Non-Marxians reject that explanation and so to counter neoclassicals they need to come up with alternate theories of value that explain value extraction as economic rent. That is what MM proposes is needed and sets out to do.

Konrad said...

@Tom Hickey: The U.S. Empire and the ancient Roman Empire both started out as cohesive societies. Then Rome was destroyed by economic rent. Now it’s the USA’s turn.

Nothing can stop this. The oligarchs are too greedy to stop, and the masses are too cowardly, selfish, and stupid to stop attacking each other. The oligarchs are vampires, and the masses are cannibal zombies.