Theory matters, alas not only in theory.

In her latest book, The Value of Everything, Mariana Mazzucato complained that value used to “measure what Smith called ‘the wealth of nations’, the total production of an economy in terms of value. As value is now merely a relative concept . . . we can no longer measure the labor that produced the goods in the economy and by this means assess how much wealth was created.” Mazzucato longs for those times when “the values of… products derived from the amount of work that was needed to produce things, the ways in which technological and organizational changes were affecting work, and the relations between capital and labour.” She believes that “with marginal utility there are no longer classes, only individuals, and there is [sadly] no objective measurement of value.”

Recently, Mazzucato was appointed by the Italian government as a member of a committee (task force) of experts that should oversee the attempts to re-open the economy after the COVID-19 lockdown. As in other jurisdictions, the government is trying to plan the lockdowns lest they cause shortages of food and the like. For this reason, “essential” supply chains are kept working. Defining what is “essential” and what is not is proving difficult, because, as Don Boudreaux aptly remarked, the economy is not a series of supply chains.

A few days after her appointment, Mazzucato tweeted the following: “if there are ‘key’ or ‘essential’ workers in the economy, next step is to recognize ‘essential’ part of the economy that needs funding, nurturing and massive rethinking. Corollary is to understand how so much value could have been extracted by ‘non essential’ part, and reverse that”.

Mazzucato’s latest book is essentially (no pun intended—or not?) a reappraisal of the labour theory of value – and here Mazzucato is trying to infer some normative prescriptions out of that. Let me point out just a few problems, and certainly our readers will easily find more:

– what is “key” and “essential” changes. Mazzucato and others think you can come up with a hierarchy of needs – and that the point of view of the Minister of Health should trump yours and mine. But even that may change over time. What is “key” in a pandemic may not be so in a normal situation, or in an emergency of other kind. One good example of that are policies that Mazzucato tends to follow, i.e., those leading us towards “greener” productions. Governments that used to want us to use less plastic now will nudge us towards using plastic bags, but it is not necessarily something we want to keep doing for ever.

– how do you “reverse” resources going to the unessential part of the economy? What does that include? Everything which is shut down now? That, in Milan includes restaurants, bookstores, and shoe shops. Shall we tax them harder, so that resources may happily reallocate to the “essential” part of the economy?

– Mazzucato is likely to be thinking, actually, about finance, her bete noire. Shall we “direct” finance towards some kind of investment instead of others? How do we do that? Nationalizing hospitals and pharmaceutical companies? Are we sure the government will better finance them than private investors will do? Or shall we aim for the nationalization of banks, like in China? That will make credit a province of politics. Is that going to help distinguishing between what is essential and what is not?

I fear we may end up seeing a new wave of nationalization, in Italy, in a couple of years. Firing people is prohibited during the lockdown; the government is trying to relieve businesses from repaying debt, quite a few of the Italian banks already had plenty of non performing loans. Perhaps COVID-19 will also produce a banking crisis, at least for us.

Mazzucato will then rejoice in Schadenfreude. All of her interventions are predicated upon the idea that some “experts” can substitute their judgment for consumers’ and investors’ for good. I’d say let her have a chance and later see the results if only she was advising some other country’s government, and possibly in less a dramatic time.