The Cooking the Books column from the March 2013 issue of the Socialist Standard
Writing in the Guardian (19 January) in an article subtitled ‘Talk of a fairer capitalism is just hot air unless we rehabilitate and reward the idea of value creation,’ economics professor Mariana Mazzucato quoted Big Bill Haywood of the Western Federation of Miners and later the IWW as saying: ‘The barbarous gold barons do not find the gold, they do not mine the gold, they do not mill the gold, but by some weird alchemy all the gold belongs to them.’
She used this as an introduction to her case that capitalism today is more concerned with ‘value extraction’ than ‘value creation’ and that this needs to be corrected to avoid further financial crises. ‘Restraining the power of value extraction,’ she wrote, ‘requires a theory of value – an area once hotly discussed in economics, but no longer,’ and went on:
‘This is because a century ago the notion that labour creates value (central to the work of classical’ economists like David Ricardo and Karl Marx, and measured by objective factors like productivity) was replaced by the ‘neo-classical’, subjective notion that satisfaction and ‘preferences’ create value.’
This is a valid point. In fact, modern bourgeois economics has gone further and dismisses the whole idea of ‘value’ as a useless concept, arguing that all you need is a theory of price. This enables it to obscure the obvious fact that wealth, as something useful to human life, can only be created by people working. In their theory labour becomes reduced to just one element, along with land and capital, of cost and so of price.
Marx’s theory of value was that a commodity (as a good or a service produced for sale) was determined by the amount of ‘socially necessary’ labour expended on its production from start to finish. By ‘socially necessary’ he meant the labour that had to be expended to produce it by an average worker of average skill working with average equipment; in other words, not necessarily the actual labour expended, otherwise a slower than average worker would create more value.
Marx was not talking just about the labour expended at the last stage of production of a good but of all the labour expended on it from start to finish. That included labour expended on mining or growing the materials, constructing the machinery, supplying the energy, and making the semi-finished products, i.e. the past labour incorporated in the fixed and circulating capital.
According to Marx, ‘value creation,’ to use Mazzucato’s terminology, took place when workers produced a commodity. The workers transferred existing value from the raw materials, machinery, etc. to the product but at the same time created new value. However, what they produced was not theirs but belonged to the capitalist owner who employed them. A part of this did go to them as their wages, but most went to the capitalist as ‘surplus value’. This legalised robbery (Haywood‘s ‘weird alchemy’) could well be described as ‘value extraction’.
But this is not what Mazzucato means by the term. She is not as radical as might at first seem. Her case is not against capitalism as such, but only against present-day capitalism which she sees as biased in favour of finance and against industry. Her ‘production theory of value’ is a plea for, as she put it, ‘reinvesting profits into areas that create goods and services’ instead of financial juggling.
But, as Marx explained, ‘value extraction’ occurs at the point of production. Financial juggling is not extracting value from the producers but from those who originally extracted it from them: the mining, manufacturing and service capitalists who employ them. Mazzucato is taking sides in a thieves’ quarrel.