November 30, 2020 Reading Time: 5 minutes

As a profession centered around choice, prices, production, information and values, economics is not always particularly good on those topics. As the saying goes, “An economist is someone who knows the price of everything and the value of nothing.”

With the onset of subjective value theory in the late 1800s this ceased to be true ‒ or began to be true, depending on your point of view. From then on, economists overwhelmingly accepted that value is in the eye of the beholder; we don’t really care what you value and instead we take your preferences as given. As the old phrase goes, “There’s no accounting for taste.” You like what you like. 

But discarded economic ideas have a knack for surviving in the darkest corners of the profession, popping up when you least expect them. Sometimes that keeps alive traditions that have something valuable to contribute to new problems, but more often than not it propagates mistaken ideas, leading to repackaging of old wine in new bottles

A delivery of such repackaging is underway in value, from eccentric environmental engineers trying to recast value in terms of energy expanded to pop economists assigning as valuable anything they like ‒ of this latter approach Mariana Mazzucato and Stephanie Kelton are only two high-profile examples.

Now, objective theories of values (through, say, energy usage or labor) never really disappeared after the subjectivist and marginalist revolutions of the 1870s, but lingered in the underworld of economic thinking ‒ famously through post-Keynesians like Piero Sraffa or computer scientists like Paul Cockshott

The replaceable value of everyone: an illustration

When I was a young and idealistic environmentalist (yes, I know; don’t ask), I was big on “blaming the system.” Individually, we should all act such that we minimize our emissions. But some emissions aren’t our fault when so many things, like agricultural production, shipping methods or electricity generation are outside of our control. To achieve our high-flying goals, the system itself must change. 

What exactly that “system” was, what it was doing, how it ought to change, and whether that would really be much better for the people we thought we were helping, were all questions that didn’t really bother me and my Green Party friends. It was just obvious to us that less human impact in every way, shape, or form, was a good thing ‒ and that we could live perfectly fine lives on less. Our simplistic ideas of economy and ecology were enough of a basis with which to overhaul the world. 

As a noticeable example, I found the following argument remarkably compelling: 

  • Every morning a worker drives from City A to City B, to return in the afternoon. 
  • At the same time, another worker is doing the reverse journey.
  • This is an obvious waste! We could cut down four petrol-guzzling commuter trips a day if we would just have these people change jobs (or homes).

As an environmentally conscious central planner this makes sense: less travel (nobody likes the commute after all), with the same output ‒ grand! Efficiency! 

There was just one tiny assumption that I overlooked at the time, that took me ten years and a good number of economics textbooks to grasp: Not all humans are the same; Labor “input” and “output” is not homogenous; Not all workers produce the same value. And from the individual point of view: not all jobs (and homes, and spouses) are of similar quality, similarly rewarding, require the same skills, knowledge, or experience. 

In hindsight, it’s a ridiculous mistake to make. Still, the history of economic thought ‒ ancient and modern ‒ is riddled with economists having to rebuke this exact mistake, over and over. In 2017, University College London professor Mariana Mazzucato published The Value of Everything: Making and Taking in the Global Economy, plunging headfirst into redefined “value” as what she valued rather than the people involved value. Well understood before pesky economists came onto the scene, Mazzucato says greedy bankers, international capitalism, and their economist lackeys derailed the economy. It used to generate good livelihoods for regular people; now it merely extracts value from the very same workers it ought to benefit. 

Some 250 years before Mazzucato, Adam Smith pointed to some obvious problems in her reasoning. In The Theory of Moral Sentiments, he spelled out that you can’t just “arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board.” 

The “man of the system,” as Smith derogatorily called central planners and those who imagine they can easily rearrange outcomes in society: 

“does not consider that the pieces upon the chess-board have no other principle of motion besides that which the hand impresses upon them; but that, in the great chess-board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might choose to impress upon it.”

Stephanie Kelton, another darling of the left, repeatedly makes the same mistake. In her much-hyped book this year, The Deficit Myth, she repeatedly comes back to proposals that make the government the employer of last resort. Under different versions of the proposal, the government guarantees a job with good pay (and benefits!) to anyone who wants one. 

After complaining indignantly about underemployment, the ills of long-term unemployment and the jobs lost by those whose skills are no longer as valuable as they once were, she hints that everyone can perform any job. She says things like “There’s no inherent reason why jobs in retail or food service should pay worse than the [manufacturing] jobs that came before [them],” implying shamelessly that wages have no connection to the value of the work they produce: 

“If we have people who want to become doctors, nurses, and teachers, if we can grow all the food we want ‒ then the money can always be made available.” 

Fair enough, in true communistic fashion all of us can do any job. In reality it’s just a question of how poorly we will do them. That’s one critical dimension missing from the MMT crowd’s dreamy visions of a better world. 

Another mystery is the kinds of jobs that unemployed people on the government’s dole will perform; the tasks will be decided on by local communities themselves, ensuring that <insert seriously “valuable” stuff> gets done. Simultaneously, the work will be infinitely flexible to suit the individual worker’s needs and limitations, but also maximally useful to “the community.” Never mind that the reason such “needs” don’t get fulfilled in the private sector is because they (almost by definition) are not valued as such by anyone willing to pay for it. If they were, others would already have employed unused labor at $15/hour in service of these “needs.” Never mind also that a community doesn’t have needs; only individuals in those communities do, and it’s far from obvious that they can be aggregated (remember your Kenneth Arrow?) in a way that’s beneficial to “the” community. 

Kelton’s scheme and Mazzucato’s values overlook entirely what “the” job market does: matching worker skills with labor demand, satisfying consumer wants ‒ and wants that they value, rather than what some far-away economist says they ought to value. They join the popular chorus, advancing exactly the kind of “homogenous labor” arguments I made in my environmentalist youth. Values are clear, obvious, and widely agreed upon; anyone can do any task advancing and addressing the “needs” that those values spell out. 

Economics is the study of scarce means and infinite wants, or, in the Lionel Robbins definition that graces most textbooks, “The science which studies human behaviour as a relationship between ends and scarce means that have alternative uses.“ The problem of our world isn’t for us to come up with more plausibly useful stuff for people to do (that list has no end). The problem that labor markets, commercial enterprises, and individuals more broadly aim at is exactly what Kelton and Mazzucato (and I, a decade ago) think they can easily overhaul: identifying and discovering value, creating as much more of it as humanly possible with the stuff, knowledge, and resources we have available. 

The disdain for private commerce pours through the pages of The Deficit Myth, but never so much so as when Kelton imagines the transition for a newly unemployed worker. Rather than “sort boxes at a private retailer,” she says, the worker in her scheme will “perform a useful job in public service.” 

Everything that’s wrong with the (left’s) modern overhaul of value theory is included in that sentence.

Joakim Book

Joakim Book

Joakim Book is a writer, researcher and editor on all things money, finance and financial history. He holds a masters degree from the University of Oxford and has been a visiting scholar at the American Institute for Economic Research in 2018 and 2019.

His work has been featured in the Financial Times, FT Alphaville, Neue Zürcher Zeitung, Svenska Dagbladet, Zero Hedge, The Property Chronicle and many other outlets. He is a regular contributor and co-founder of the Swedish liberty site, and a frequent writer at CapXNotesOnLiberty, and

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