I recently read Mariana Mazzucato’s The Value of Everything (2018), which contends that the economy as it is presently constituted often rewards value “extraction” rather than value “creation”. Notorious examples include various forms of financial speculation, patent trolling, and monopolistic behaviour by which individuals and firms obtain money vastly out of proportion to the actual value of what they produce (if they can be said to produce anything at all). The core question of the book, to which Mazzucato doesn’t offer a definitive answer but instead wants us to think about, concerns how (economic) value ought to be defined in the first place.
Like most economists, Mazzucato is critical of “rent” and “rent-seeking” in the economic sense of money received over and above the actual social or economic value of the good or service being produced. The interesting question from the point of view of this blog is whether or not I might be living off rent by taking advantage of the home that I own and the savings that I have to live without having to do very much work. The same accusation could be levelled at build-wealth-and-live-off-the-investment-income-type strategies advocated by Nik Halik and the like.
Of course I own the home and have the savings due to work I did in the past. And I haven’t actually had to use my savings for anything beyond some home repairs and setting up A Little Research; I cover all of my day-to-day expenses out of my part-time salary. One could argue about how much academics and software engineers ought to be paid, or how much tax they ought to pay, but I doubt there are many who would quibble with spending and enjoying one’s own savings once the income has been earned and the tax has been paid. What one makes of Nik Halik’s scheme might depend on exactly how one’s “passive income” is derived but, as the name suggests, the whole purpose of it might be seen to be to obtain income without having to do anything.
Day to day, however, I guess most people presume that obtaining, saving, and spending money in more or less any way that the law allows is a legitimate way of living, and I take Nik Halik to be working on this presumption as well. Mazzucato’s point is that we ought to think more about (a) what sort of activities we consider to be adding value and therefore ought to be rewarded and (b) where the value actually comes from. (Mazzucato contends that much more value is created by the public sector than is often recognised in public debate; her other book, The Entrepreneurial State (2015) discusses this at length).
Given that economists have been debating the nature of value and how to measure it for two hundred and fifty years, and it takes Mazzucato a few hundred pages just to set out the question, I won’t try to propose my own theory of value here. But when I do take on work for pay or invest money in hope of a return, I’d like to think I’ll be conscious of whether I’m creating value or just extracting it.