[Namsan Ddalkkakbari] The Price That Swallowed Value, The Cause of Inequality

In Modern Society Where Price Determines Value... Companies Prioritize Financial Markets and Shareholder Value
Rising Valuations Spread to Finance, Manufacturing, etc... 'Financialization' Resulting from the 2008 Financial Crisis
Unjust High Gains Justify 'Value Exploitation'... Leading to Today's Capitalism Crisis

[Asia Economy Reporter Byunghee Park] "Do not recklessly challenge. Mariana Mazzucato is the most feared economist in the world."

This is a review printed on the band of the book Everything About Value by the British daily The Times. During the Occupy Wall Street protests in September 2011, the slogan "We are the 99%" came to mind. I thought it was a piece about the anger of the 99%. The expectation was not wrong. Mazzucato begins the first sentence of the preface with, "From 1975 to 2015, the United States' Gross Domestic Product (GDP) tripled, but the real hourly wages of the majority of American workers either stagnated or declined." She then points out, "This means that for nearly 40 years, the benefits of economic growth have been almost entirely taken by a small upper class."

Mazzucato argues that the fundamental cause of such inequality is the inversion of value and price. She questions whether the prices assigned in today's capitalist market economy are just. This is why the title of this book is Everything About Value.

According to Mazzucato, until the mid-19th century, almost all economists thought of value before price. However, at some point, the way of thinking about price and value was reversed. It was thought that price determines value, not value determining price. The period of this reversal coincides with the rise of socialist values. Socialists advocated reforms because they believed that workers did not receive fair compensation (price) relative to the value of goods and services they produced. Capitalists opposed this, strongly supporting the theory that price, not value, is important and that price determines value. Capitalists created the logic that receiving high compensation itself is a valuable activity.

The concept that price determines value is widely accepted in many parts of today's economy. For example, new drugs developed by pharmaceutical companies are assigned astronomical prices. Mazzucato cites a 2017 USA Today article reporting that a leukemia treatment costing $500,000 (approximately 597 million KRW) was approved by the U.S. government. She questions what value there is if, despite excellent treatment effects, almost no patients can afford the treatment due to its high price.

The idea that price equals value has led companies to prioritize financial markets and shareholder value above all else. Mazzucato points out that profits that should be invested to produce valuable goods and services are instead used for stock buybacks to boost stock prices.

The concept that price equals value has resulted in finance being reflected in GDP, an indicator measuring economic growth. GDP is the total sum of added value at each production stage. Early economists did not consider finance as an activity that creates value. They regarded it simply as transferring existing value. In other words, finance was categorized as non-productive, not producing value. However, in the 1970s, finance began to be included in GDP calculations. This was due to multiple complex factors, such as the post-war manufacturing boom fading. Financial regulations also began to be relaxed. The financial industry rapidly expanded, and finance penetrated manufacturing and non-financial service sectors, a phenomenon called "financialization." The 2008 global financial crisis caused by derivatives was an extreme result of financialization.

Mariana Mazzucato

Mazzucato points out that the inversion of the concepts of value and price is leading to the crisis of capitalism today. The biggest problem is that this inversion has made value exploitation wear the mask of value creation, making it easier to exploit wealth. According to Mazzucato, value creation is the activity of utilizing resources to produce new goods and services, while value exploitation is the process of unfairly gaining excessive profits through transferring and trading resources. Although prices do not properly reflect the value to society as a whole, focusing only on figures expressed as prices and stock prices justifies exploitation and neglects activities that genuinely contribute to improving lives by creating value.

Mazzucato argues that the reason exploitation is justified and capitalism faces a crisis is that classical economists' theories were distorted or misunderstood, prioritizing price over value.

Rent is a key means of value exploitation today. For 18th-century economists, rent, meaning "land rent," was unearned income, or economic rent. This is because it is income derived simply from transferring already existing resources. However, under the concept that price creates value, rent becomes an effective means of exploitation. Rent creates price and itself holds value.

According to Mazzucato, Adam Smith also argued that policymakers should do their best to eliminate rent. Mazzucato points out that it is a misinterpretation to think of Adam Smith only as a laissez-faire advocate who believed markets should be left alone. Smith thought a proper market was not one without government policy but one without rent-seeking behavior. The reason Smith's book The Wealth of Nations became so voluminous was that many rent-seeking behaviors needed to be addressed, and Smith devoted much space to explaining productive and unproductive activities.

Mazzucato received the Leontief Prize in 2018, awarded to scholars who broaden the horizons of economics. She concludes by arguing that to overcome the crisis of capitalism, the concept of value must be placed back at the center of economics, and governments should pursue more active policies in the process of creating and shaping markets.

(Everything About Value / Mariana Mazzucato / Translated by An Jinhwan / Minumsa / 23,000 KRW)

This content was produced with the assistance of AI translation services.