One day in 2010, Goldman Sachs CEO Lloyd Blankfein inadvertently provided a glimpse into the fundamental economic assumptions behind the financial crisis which had recently rocked the globe. When asked why his bank was so profitable in the face of a sluggish American recovery, he replied:

“The people of Goldman Sachs are among the most productive in the world.”

Arguably, he was doing the duty of a CEO in defending his employees under media pressure. Still, it was high praise for a sector whose recklessness had thrown the world’s richest economy into chaos and who were rewarded for it with a bailout deal. And it raised a further question that had suddenly become relevant again because of the crisis: productive by what measure?

When Mariana Mazzucato discusses that question, the Blankfein quote remains one of her favorite go-to’s. Based at University College London and founder of the Institute for Innovation and Public Purpose, Mazzucato has spent her professional career on answering it. Her latest book on the topic is The Value of Everything: Making and Taking in the Global Economy, published in 2018.

The book is a tour de force of economics, history, and policy. Such breadth is arguably necessary for Mazzucato’s fundamental goal: reopening the debate about economic value, what it includes, and who has the power to define it. What should count as real economic wealth? Who truly creates it, who merely assists the process, and who might be actively impeding it? The answers to that question have directed how economies develop, how governments direct or impede production, and what forms of economic power come to dominate human life.

Once, the question of value dominated economic discourse. The French physiocrats argued that wealth was produced from the land. Conversely, Adam Smith tended to see landlords as a rentier class. Marx famously defined labor itself as the source of value. But this debate about value, once core to economic discourse, has long been de-emphasized in the discipline. As Mazzucato demonstrates, the marginal revolution in economics heralded a subjective, utility-focused approach that effectively sidestepped the historic debate about value—a sidestep that, in Mazzucato’s telling, drastically impoverished the discipline. An undergrad student today is likely to hear the above names once or twice in the opening lecture of an introductory course, and then only as a one-off primer. How did this happen?

Following a historical primer on how the question of value was obscured, the book takes the reader through the successive results. Chief among these are the rise of financial power and its cannibalization of large parts of economic life, the extractive institutions in technological and medical innovation, and the gutting of a once-innovative and bold public sector, which had produced immense value across fields from consumer technology to medical products.

Ultimately, Mazzucato exposes an orthodoxy of silence about value in modern economics, as well as in government. This orthodoxy, claims Mazzucato, has undermined public and private institutions and fundamentally weakened the ability of modern neoliberal economies to innovate.

But Mazzucato is optimistic: the glory days of innovation are not lost to the mid-20th century. By returning to the question of value, Mazzucato is calling for state and private actors to address, on a large scale, what forms of value our economic life should create. In taking this frame, it becomes impossible to flee political and social questions for the bloodless realm of technocracy—the minimization of governance’s moral and political judgements in favor of a ‘scientific’ cloak. Such an approach to economics restores the social and collective element to how value is created. It is a bold call, and one which undergirds the book’s detailed and multifaceted contents.

Mazzucato’s introductory chapters on the value debate are especially useful in how they subvert popular dichotomies. She begins with familiar names like Adam Smith, David Ricardo, Karl Marx, and Vilfredo Pareto. But they are no longer categorized and opposed to each other on the basis of ‘free markets,’ or other discourse tropes of the political commentariat. The important question here is that of what creates value—and on this point, Smith and Marx find themselves fighting on a similar front against their successors decades later.

A key tool for understanding the divide is the production boundary. As an accounting tool, the boundary determines what is considered production in national accounts. For example: modern economists generally consider a service worker at a hotel to be contributing to the labor market’s supply side, while someone doing chores in their own house is generally not considered to be part of a market at all. As countries developed national accounts records, the question of what to consider real wealth was vitally important. The sides which later economists took represent not only theoretical differences, but different sides in class conflicts, political battles, and strategies for national and imperial greatness. As Mazzucato notes, Adam Smith himself conceived of his project as “giving guidance to ‘statesmen’ on how to act to ‘enrich both the people and the sovereign.’” If early economists aspired to an objective understanding on how to achieve their ends, the ends themselves were immensely political.

Smith, Ricardo, and Marx took labor as key to understanding how value was created. Smith’s stricter production boundary leaves only primary and secondary sectors as productive, and excludes what we now call the service sector. His thesis takes labor—specifically, labor realized in a “permanent object” of material production—as the source of value. In doing so, he broke with earlier thinkers who had considered industry to be merely a facilitator of wealth drawn from the land, like agriculture.

Smith also highlighted what he considered to be the great enemy of production: monopolistic power. Rentier landlords, mercantilist protectionism, and competition-stifling guilds were impediments to the market’s freedom. Unlike many who invoke him in the present, Smith saw government as playing a leading role in establishing what he defined as a ‘free market’: one free from rent-seeking monopoly power, not from government regulation. Ricardo, in his turn, explored subjects like the distribution of income and the vital role of surpluses in spurring development.

Marx, in contrast to Smith, placed the service sector in his production boundary. Ironically, neither Marx, nor Smith considered government to be inside the production boundary—an assumption Mazzucato challenges later in the book.

As Mazzucato elaborates, Marx’s contribution was not, strictly speaking, the tying in of labor with value. Rather, it was his recognition that the capitalist form of production created a new form of society, characterized by class realities and relationships markedly different from what came before. But he also introduced a more subtle production boundary: what mattered was not occupation per se, but whether labor produced surplus value. Like Ricardo, he understood rents as redistribution and not value-creation. Despite his radical politics, Marx’s economic thinking—its focus on labor, on value, and on classes and occupations—was explicitly building on his predecessors.

For Mazzucato, the real rupture has a different source: the marginal revolution and the rise of utility rather than value in economic thinking. Built on the work of Leon Walras, William Jevons, and Carl Menger, this change shaped the rise of what we now call neoclassical economics. Its assumptions shape the discipline to this day, and it’s what undergraduates are regularly taught. Rather than focusing on how wealth was created and what counted as wealth, economists began to ask how utility—satisfaction from consuming a good or service—was satisfied by decisions on the margin. This allowed for the mathematical approaches used and abused in modern economics.

The notion of utility, in this sense, is fundamentally subjective. Mazzucato notes that discourses about just or unjust prices, like those in Thomas Aquinas, become not just outmoded, but impossible. Under this view, prices are not a reflection of some objective sense of value. Rather, value exists only in the eye of the consumer. Price, in turn, reflects utility gained by a consumer from an additional unit of goods or services. The production boundary becomes weak in terms of economic analysis, since all market exchanges are effectively contained within it. Only non-market transfers remain outside it. Most damaging of all for Mazucatto, the concept of “unearned income,” once fundamental to Smith’s conception of free versus unfree markets, effectively ceases to exist. While economists can continue to distinguish between monopolistic, oligopolistic, and competitive markets, the far more political question of whether market-based value extraction can be parasitic fades from view.

The debate might seem overly abstract. But its implications have had concrete effects on the economic and political life of the world’s most powerful countries and governments. In the remainder of the book, Mazzucato turns her focus to explaining how.

The next several chapters focus on Mazzucato’s bête noire: the leviathan sector of finance, its Blankfeinian mythos of hyper-productivity, and its power over both economic and political life. Its ascension is a tale all its own, and embodies how the more abstract themes of value impact the real economic life of families, workers, and countries.

The notion that finance is part of the productive sphere at all is relatively new in the history of economic development. Aquinas and other medieval thinkers treated it with suspicion, Adam Smith more or less ignored it, and Marx treated it as part of capital’s “circulation phase.” Economists in the 20th century also critiqued it—Mazzucato notes Keynes and Minsky—but these warnings were not earth-shaking at a time when financial services were a very low share of national output. Interestingly, Mazzucato points out that Keynes prefigured modern concerns about finance’s brain drain of engineers and scientists with his quip that, rather than participating in a success story of laissez-faire capitalism, “the best brains of Wall Street have been in fact directed towards a different object.”

Measures like GDP give the impression that measures of wealth reflect scientific and objective empiricism. Economics may find itself among social sciences and arts departments in universities—but unlike its counterparts in sociology or history, it aspires to the higher realm of expertise.

In reality, GDP and similar measures have evolved over time based on the judgment of those doing the measuring. Mazzucato covers notable problems and changes. Before 2008, the international System of National Accounts (SNA) considered R&D an input—a cost subtracted from final output. But that year, in-house R&D became considered a final output, since it increased the stocks of knowledge important for companies. As Mazzucato notes, the U.S. update of this measure in 2013 “added $400 billion—2.5% of US GDP— to national income overnight.” By its nature, this was a qualitative decision. So, too, are decisions about whether to measure black market economies (as in Italy), whether to legalize certain markets and begin to account for them (prostitution in the Netherlands, marijuana in Canada), how to distinguish profits and rents (the SNA has tried for years), and non-market economies (housework and social fabric).

This is important when we consider how finance became a major and powerful part of the ‘productive’ economy.

Finance’s case is founded on the notion that it is a necessary part of spurring production by allocating capital. This is true, in a basic sense. Household savings don’t always cover costs, and business revenues don’t always cover investments. If finance merely pooled and directed resources to match these needs, it would not be a very exceptional industry. But in reality, finance does much more. Like other firms, banks are profit-driven. Rather than simple matchmaking, they act strategically to channel their revenues, especially into interest payments and toward shareholders. This logic fuels speculation bubbles, which are then continually refinanced through securitization and other strategies for inflating assets without investment.

Mazzucato cites the case of the Australian bank Macquarie, which acquired the major British utility company Thames Water. Rather than provide direct investment, Macquarie ballooned the company’s debt to £7.8 billion ($10.05 billion) over the next 6 years. In other words, the company was leveraging the privatized assets they had acquired into increasing debt, thus saving their own revenues for interest payments and shareholder distributions. This might benefit the financial companies involved, but it is hard to make the case that public assets are well-served by privatizing them into the hands of risky debt-leveraging operations. The financial crisis in 2008-9 is the most infamous example of what happens when debt is used to inflate asset values, which are in turn used to back up financial instruments.

As Mazzucato points out, the large scale effect of finance’s market strategies since the financial crisis has been debt deflation, followed by unemployment and wage suppression: “in other words, value is extracted from labour’s share of earnings in order to restore corporate profits.”

Despite the reality of systematic value extraction in addition to real saving and lending, the financial sector is viewed as a key part of the economy. One of the key SNA revisions that cemented this status only came in 1993. That year, the SNA was revised to include a metric called ‘financial intermediation services, indirectly measured’ (FISIM). FISIM measures the differential in interest that borrowers will pay and lenders will receive in relation to a ‘reference rate,’ multiplied by the stock of loans. To the extent that this measure is high, banks are seen as providing real value to both. Mazzucato reflects that after this change, FISIM was considered a real productive contribution rather than a representation of services that were ultimately consumed by firms as inputs.

With the full implementation of this change by the late 2000s—”just in time for the 2008 financial crisis,” Mazzucato blithely notes—the financial sector has continued to make growing ‘contributions’ to GDP, particularly in the U.S. and U.K. And yet, events during those decades have made clear how different they are from other firms. Sectors like tech or natural resources can’t contribute to the money supply the way commercial banks can, and can’t as easily hedge parts of the economy against each other while playing both sides. Even the economic fallout has been to their benefit, as households are forced to compensate for the market’s sluggishness through private debt.

But this is far from the whole story. The financialization of the economy has unfolded far beyond the activities of banks. Mazzucato provides an account of the process which is both rigorous and approachable to non-expert readers. The effect is most obvious in asset management and the world of hedge funds, private equity, and venture capital firms. Once distinct from risk-averse pension funds, the rules on pension fund investments have been relaxed since the 1970s.

The differences between lender and borrower interest rates reflected by the FISIM metric theoretically represent a transaction cost on the movement of liquidity. But governments count them as productive contributions from the financial sector. Monopoly power and high charges for taking on risk—which might be assumed to lend themselves to more effective regulation—have gone hand in hand with unchained speculation. All these qualities which would be regarded as unacceptable inefficiencies in other industries and proof of government incompetence in the public sector.

Conversely, finance seems to exist in a realm all its own.

Such financialization has deeply affected the real economy. Mazzucato points to the American icons of Ford and General Electric: “In the 2000s, for example, the US arm of Ford made more money by selling loans for cars than by selling the cars themselves…Over the same period GE Capital, the finance arm of the enormous General Electric (GE) group, made around half of the whole group’s earnings.” Hard production is further undermined by short-termist pressures which divert revenues from risk-taking R&D toward share buybacks.

Mazzucato brings clarity to the situation in examining how private equity firms ratched up the debt to equity ratios in two vital services in the U.K.: care homes and water. Care homes increasingly went from family firm or local control to becoming parts of larger chains. Many of these have private equity involvement. Mazzucato examines the case of Four Seasons Health Care, where a series of debt expansions and resales ultimately left the company with an annual interest charge of over £100 (nearly $130) per bed per week by 2008. In the case of water companies, those owned by private equity firms—itself a result of English and Welsh water privatization in 1989—carried the highest net debt. Mazzucato points out that “the company with the lowest gearing (ratio of debt to equity) and the highest credit rating was Welsh Water, which is mutually owned.” Welsh Water is owned and operated as a not-for-profit operation by a single-purpose private company for the benefit of customers, with its board made up mostly of independent directors who do not play an executive role.

In all these cases, political decisions opened the path for the financial sector’s actions. Often, this was undergirded by an ideology which vaunted private sector discipline and efficiency, compared with public sector stagnation and sluggishness. The truth isn’t as rosy. In the case of Four Seasons, their financial straits later became severe enough that twenty-eight homes were embargoed for further residents.

Following her exacting discussion of financial power, Mazzucato spends the final chapters of the book on two other great myths in the modern story of value: innovation and the public sector. These chapters serve a valuable purpose in ensuring the reader doesn’t lose the forest for the trees. Ultimately, the stories we tell about economic value are the point here, not just another discussion about finance as such.

For Mazzucato—deeply influenced by Joseph Schumpeter, the great standard-bearer of innovation’s centrality to capitalism—the great myths around innovation surround its very sources. In particular, the true investments and risks which have driven modern innovation are far more collective efforts in her reading. In contrast, many of the rewards have been captured and privatized by tendencies similar to those in finance, and in the classic rent problems of thinkers like Smith.

One of Mazzucato’s great points of advocacy has been championing how many of the world’s biggest companies have built themselves on the legacy of state backed, publicly funded innovation. For example, nearly all major parts on modern smartphone, including touchscreens, were originally developed in university-based research facilities with public money. The optimization of these technologies into industrial products is the significant contribution of the private economy, but the foundational technological innovation itself does not originate in private industry. Other prominent examples include the role of the Defense Advanced Research Projects Agency (DARPA) in developing the Internet and SIRI, the U.S. Navy’s creation of the GPS system used by phones and computers, and the National Science Foundation’s grant contributions to creating the algorithm behind Google.

One example that stands out is pharmaceutical drugs. It is a common refrain among American drug companies—and one Mazzucato examines in-depth—-that exorbitant prices are necessary for R&D revenues. But in her analysis: “research has shown that two-thirds of the most innovative drugs (new molecular entities with priority rating) trace their research back to funding by the US National Institutes of Health.”

Mazzucato contrasts the stages at which research is financed by public versus venture capital funding. Generally speaking, public funding tends to step in at risky, early-stage research—the stage where most ventures necessarily fail. The private sector generally desires greater certainty. Nevertheless, it is possible to speculate on uncertainty, and Mazzucato details how the biopharmaceutical private sector has repeatedly done so despite a patchy record of product delivery. It is very much worth considering the implications. Venture capital funds—like the aforementioned banks—take on risk, and are surely entitled to reward. But in these sectors, a large payout is seen as a sign of success—the public sector alone is seen as “inefficient” and an “obstacle” insofar as it actually earns direct revenues from its ventures, through taxation or otherwise.

The rest of Mazzucato’s survey of the innovation sphere takes the reader through other strategies of extracting value. Of course, there is the renowned debate on patents and intellectual property. By nature a monopoly, the equivalencies between rent and incomes from intellectual monopoly have been widely discussed, and Mazzucato’s overview is succinct.

Her following analysis of pharma pricing brings back the question of value in a very real way. Under heavy criticism for the old canard that high prices are justified by (much inflated) R&D expenses, companies have invoked “value-based pricing,” arguing that high prices reflect the value provided by the drug. But this value is often highly questionable, since true ‘free markets’ do not really exist in much of the medical sphere. The degree of investment and administrative specialization required favors large conglomerates and companies with the capacity to build expertise. Mazzucato cites the research of well-known oncologist and critic of pharmaceutical pricing Dr. Peter Bach, who has argued that true values-based pricing should lower prices in many cases.

But should medical necessities treated as such commodities at all? Who should be the buyer, and what their incentives? This is a political question, and one which should take into account that, as we have seen, much of this research is already publicly funded to begin with. Finally, we get a look at first-mover advantages and network effects: collective realities which generate the user base and mass data which companies effectively privatize in terms of value.

This brings us to the culmination of a theme which Mazzucato weaves through the entire book: the public sector as a true creator of economic value—value which could not just as easily be created by private counterparts.

In Anglo-American political commentary, John Maynard Keynes is still seen as the prophet of state investment. Mazzucato gives a useful introduction to his lens, but points out an important fact: Keynes was focusing on state activity during bad economic times. The spending he discusses is ‘counter-cyclical,’ intended to shock sluggish and shrinking output. In reality, states have been able to create value beyond the bounds of correcting market failures. The battles over measuring whether public spending multiplies value or not characterized much of 20th century economics. As Mazzucato points out, European austerity cuts may have provided test cases as cuts led to falls in total output. One study she cites finds that the multiplier value of public spending in advanced economies—the effect that an increase in public expenditure has on total production—is 1.5. What this means is that, on net, such spending creates more value on net than it destroys or crowds out.

Public choice theory holds its place in the University of Chicago’s legacy of ideas. With its focus on the potential of bureaucratic capture by crony corruption, it brought an attitude of caution—even suspicion—to the possibility of state intervention to resolve market failures. With a risk-averse attitude toward government failure, it served as a powerful ideological tool in government turns toward privatization. The IMF and World Bank became vehicles for global pressure, backed with development dollars, for growing states to shed their assets to the private sector. The idea was that the private sector would, in most cases, do a better job. And where market failures existed, governments ought to be stringent in ensuring that they did not do more harm than good.

Some decades later, it’s time for test cases. Mazzucato takes cases from healthcare and other public initiatives: particularly prominent is Britain’s National Health Service (NHS), in which the private sector has had a creeping presence thanks to outsourcing.

In that case, “internal markets” were intentionally created and hospitals turned into trusts and encouraged to contract services. As Mazzucato details, the result was increasing levels of private-public administrative bureaucracy. Importantly, the resulting markets were hardly competitive, since only a few specialized firms can service particular needs—a fact which doubtlessly makes collusion easy, even informally. Such administrative transaction costs create no direct value, but grow with privatized outsourcing. While current information on the NHS appears unavailable, Mazzucato contrasts the capture by such administrative costs of 30% of total healthcare expenditure in the U.S., compared with only 6% in the NHS prior to its marketization phase. With vertical integration along supply chains long proven to create economic gains for multinationals, it should not be entirely surprising that the reverse trend in the name of privatization might actually raise costs.

Mazzucato also looks at examples like Scottish infrastructure and private contractors which work with both U.S. and U.K. governments. Particularly troubling is the pattern of contractors repeatedly winning contracts despite multiple breaches and fines. One example is the British security firm G4S, which has been fined for “at least 100 breaches of prison contracts between 2010 and 2016 including ‘failure to achieve search targets, smuggling of contraband items, failure of security procedures, serious cases of “concerted indiscipline,” hostage taking, and roof climbing.” Nevertheless, G4S and similar companies across service sectors continue to win contracts, thanks to their dominance in a niche industry requiring specialized administrative expertise.

One of Mazzucato’s most startling citations is a study showing federal approval for contract billing rates which net these private companies 1.83 times more than it pays federal employees in compensation and more than 2 times the private sector equivalent—and all this despite the fact that the actual workers in contractor firms often suffer poor wages and conditions. Rather than lean and efficient services, privatization appears to have led to administrative bloat, price inflation, and a gutting of state capacity.

This gutting is, in essence, the most harmful aspect of the whole operation when it comes to state capacity. In a world where existing technologies are built on the legacy of bold and successful public investment, states have been convinced that they should not and cannot achieve great things. Cuts undermine previously successful initiatives, leading to propaganda about inherent public sector inefficiency, and then to the capture of state achievements by private capital. And, adding insult to injury, the cronyism continues and even worsens.

Mazzucato’s challenge is not just to revive the economic debates about where value comes from. It is to bring that debate to the center of modern questions about economic growth and innovation. The consequences of 2008-9 have not simply been economic, but political. It is difficult to see how the populist movements which have rocked Western countries since then could have grown without that period. Moreover, stagnation has allowed China to increase legitimacy as a superior alternative and partner for countries seeking economic growth. Political consequences are the wellspring of history’s great conflagrations. When the polity breaks down completely, internal appetites turn from growth and stability to spite and revenge.

Instead, Mazzucato calls for an “economics of hope.” A bolder and competent public sector does not come at the expense of private initiative, but rather creates opportunities for willing private actors. Markets, in this understanding, become tools to be used rather than hedges by cowardly states or some kind of economic ‘state of nature.’ She points to the great Austro-Hungarian economist Karl Polanyi’s understanding of markets as “deeply embedded in social and political institutions. They are outcomes of complex processes, of interactions between different actors in the economy, including government.”

Particularly vital is the rebuilding of the public sector’s in-house capacity for innovation. The private sector, which has outsourced much of its production line abroad, will likely have a role to play here. The mission-oriented approach which Mazzucato calls for, and has written about in her other work, does not subsume the economy into the bureaucracy of a leviathan state. The age of the Apollo missions, and of the research which undergirds modern technological and medical knowledge, existed side-by-side with a dynamic private sector. So too do the state-directed market economies of today. Mazzucato refrains from providing a fleshed out value-theory of her own; however, her clear goal is that economists and governments alike to cease viewing value as a purely subjective and individualistic measure.

The Value of Everything is absolutely worth the deep and reflective read. It will remain a vital resource for those interested in going beyond the tropes which make up much of public economics commentary. Ideally, it will also become a valuable guide for those who create bold and enduring alternatives to spur on the governments and innovators of the future.

Ash Milton is managing editor of Palladium Magazine.