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David Harvey’s Anti-Capitalist Chronicles: The Value of Everything (Season 1, Episode 2)


Editor’s note:


Starting from March 2019, Islam Bergerak will be collaborating with Democracy at Work, an organisation that officially records and publishes a series of recent lectures by David Harvey through podcast and videos at Patreon. For the first time, Islam Bergerak will be also publishing both transcripts in English and Indonesian version, as well as the videos in Indonesian subtitles. The aim of this collaboration is to disseminate and foster the discussion to broader audience in analysing capitalism in its conceptual and concrete forms through a more simple explanation along with its alternatives to capitalism from one of the most prominent progressive intellectuals in the current time.


In the future, we are also planning to publish a series of videos on progressive Islam by two of our editors, Muhammad Al-Fayyadl and Roy Murtadho.


Enjoy the transcript below.




This is David Harvey and you’re listening to the Anti-Capitalist Chronicles, a podcast that looks at capitalism through a Marxist lens. This podcast is made possible by Democracy at Work.


It’s very easy when we start to think about the economic situation to get very pessimistic to get overwhelmed, as it were, with the idea that there are no alternatives. Margaret Thatcher’s famous phrase, TINA (“there is no alternative”) hangs over us all of the time. But, I want to start to open a pathway towards the discussion of alternatives, and not by myself necessarily proposing something which is a radical departure, but by taking up some of the questions which are currently being posed within the field of economic theory and actually more generally in society as a whole.


The starting point here is: let us talk a little bit about the nature of “value” and what “value” is about, and how we understand a term like “value.” In recent times there has been a re-emergence of interest in that question and there is a book by Mariana Mazzucato which is called The Value of Everything. It’s an attempt to introduce the question of “how do we value things?” into the field of economic theory. Now, the question of value actually in economic theory goes back a long way. It was a really hot topic amongst the classical economists like Adam Smith and Ricardo and the like, and at that time there was a general drift towards what was called the “labour theory of value,” saying that the value of commodities is fixed by the labour which is congealed within them, and that therefore there is a labour theory of value which underpins price formation. So, this idea was quite strong in the Classical period.


It ran into certain moral dilemmas, however, because it became clear that if labour was at the origin of value, then there was an issue because the labourers who created the value were receiving very little of it. And this seemed to be morally wrong – if not a bit absurd – that those who created the value should have so little of it, and those who didn’t create the value took all of it. This led to a certain kind of interest, saying: “Well, there should be a mechanism set up whereby the labourers should receive a goodly part of the value which they themselves created.”


Of course, this was in part the sort of philosophy that under underpinned some utopian attempts during the early 19th century. One thinks of Robert Owen, for example, who took the view that “yes, workers deserved to gain back much of the value which they themselves produced” and Robert Owen’s attempts to create forms of organization that allowed that to happen, which was significant. Other economists of that time – the Ricardian socialists for example – and somebody like John Stuart Mill, took the view that “well, maybe you couldn’t reorganize production, but maybe you could set up redistributed mechanisms whereby some other value which is produced, and which was flowing around in society, could be redirected – perhaps by state interventions, and the like – so that the working populations received far more of the value which they themselves created.” So the value theory at that time contained a whole set of technical dilemmas, and at the same time the whole set of moral dilemmas.


There was therefore a serious debate on the labour theory of value, and the significance of the labour theory of value. This in a sense got terminated, from the middle of the 19th century onwards, by a general drift away from any kind of allegiance to the labour theory of value, and saying the value was actually created – or measure of value – was arrived at by a very different mechanism, and very different means. In a sense value was fixed by people’s choices, by people’s desires and wants and needs, so it was fixed in the market.

So that there was an abandonment of the idea that value underpinned price, to the idea that actually price determined value; and so that if something was of a high price then it obviously was of high value. Therefore, the debate about who-should-get-what would disappear because the market would take care of that problem.


Now, this has raised questions today, and and in this book by Mariana Mazzucato she puts it this way, and I read it to you: “If bankers, estate agents, and bookmakers claim to create value rather than an extract it, mainstream economics offers no basis on which to challenge them, even though the public might view their claims with skepticism. Who can gainsay Lloyd Blankfein when he declares that Goldman Sachs employees are among the most productive in the world? Or when pharmaceutical companies argue that the exorbitantly high price of one of their drugs is due to the value it produces? Government officials can become convinced (or ‘captured’) by stories about wealth creation, as was recently evidenced by the US approval of a leukemia drug treatment at half a million dollars, precisely using the ‘value-based pricing’ model pitched by the industry – even when the taxpayer contributed $200 million dollars towards its discovery.”


The analysis of value, says Mazzucato, has all sorts of implications. Adam Smith looked on bankers as if they were unproductive. Essentially said they’re parasites who kind of live off the value created by others. I mean, bankers – if you have a labour theory of value – it’s hard to see how bankers can be producing value. Actually, Mazzucato tells me something that I really didn’t know: before the 1970s, financial services were not included in the calculation of gross domestic product (GDP). In other words, they were considered as adding nothing to the total value of gross domestic product. Only after 1970 did they get included and now of course they’re considered to be great value producers.


So, do financiers produce value? This starts to become a very important kind of question. Right now in Britain, for example, it’s become a huge question because since the 1960s onwards Britain has attached its economy, in many ways, to the activities of the City of London. The City of London doesn’t produce value in the classical kind of sense, but it produces value in the sense that its financial services become critical for the economy. The growth of financial services in London has really underpinned the whole position of the

British economy. It is clear that from the 1960s onwards, public policy in Britain was attached to protecting the financial services as the productive center and productive core of the British economy against other forms of activity.


For example, as early as the 1960s when faced with a problem of the value of the pound sterling, the only thing the government could do was to raise the interest rates. If you raise the interest rates, then what this does is to improve the value of the pound sterling and protect the pound sterling against speculation in international markets. So in protecting the pound sterling by raising the interest rates, however, you put a burden on British industry.

In other words, British industry suffered in a double sense that first its debt payments were now higher, but secondly also a strong pound made exports much harder to procure, because the value of the pound was high and that, therefore, the value of British goods was priced out of international markets.


The public policy over the interest rate was geared to protecting the the City of London as opposed to protecting British industry, so British industry tended to decline in waves and phases from the 1960s onwards because the the City of London was being favored. We’ve now got a situation where Britain decided in a referendum they were going to leave the European Union. This then raises the question: if you leave the European Union, what happens to the City of London? Do you protect the City of London, or do all of the financial services go off to Frankfurt, or Paris, or Amsterdam, or anything else? in fact it begins to look as if financial services are going to disappear from Britain. In which case, what was once the core of the British economy is going to be take a pretty hard knock from Brexit, and at the same time the British economy has not done very well in terms of protecting its manufacturing base.


So what is going to happen to the British economy in Brexit if it’s most productive sector – well, supposedly most productive sector – is going to just disappear? that rests on the assumption that the City of London is doing productive things, and that therefore what the City of London does is productive of value, in the Lloyd Blankfein sense. But what happens if you kind of said “well actually, financial services are parasitic. They’re parasitic on the real economy. And shouldn’t we actually reconstruct the real economy in Britain?”


You can see where the debate might go, and how difficult it might be. This kind of question is the big question: Are financial services productive value? And if they are productive of value, then in what sense can they be seen as productive, and in what ways are our public policy to cultivate financial services as opposed to abandoned public services relative to what might be called the real economy? In other words, what’s the relationship between Wall Street and Main Street between the City of London and the sort of pathways in Manchester and Liverpool?


This is the dilemma which currently exists. Now in the midst of this, we’re having a bit of debate about how to value things in general. In economic terms, for example, let us look at something like mergers and acquisitions. Firm A decides it’s going to require Firm B. How does it value Firm B? Well it’ll add up all of its assets, all its liabilities, and it will do a technical kind of job of that kind. But at the end of the day we’ll also add in something which is called “goodwill.” Now, exactly what is goodwill? Goodwill means that the reputation of the firm being acquired is such that the brand name is something.


Let’s suppose you’re acquiring something called Nike, for example. Well, brand name of Nike is hugely significant. Let’s suppose you’re acquiring something called Yves Saint Laurent. Well, that has significance, too, because it has a certain cache, and you know, and the like. So there comes a point where the value of a firm is its tangible assets in its material assets, plus something which is immaterial. And immateriality then, is difficult to assess.


How much is it worth in the market? How much is it worth to you to acquire a firm with a name brand like Nike or Yves Saint Laurent? And that then becomes a real, real difficulty. But it doesn’t actually deter anybody, because along come the accountants – the famous “accountants” who are supposedly expert on these kinds of things – and they put a number on that. They kind of say this is worth X million dollars or X, you know. But nobody knows exactly where that number comes from. But everybody believes the accountants, because they’re reputable accountants and everybody, then the merger takes place, and the goodwill is supposedly purchased for whatever figure it is, but then what happens afterwards when you find out actually there’s not as much goodwill there as you thought there was.


We’ve seen several mergers and acquisitions which have gone very badly wrong over the past few years because the goodwill was not really there, and the goodwill turned out not to be worth as much as anybody thought. This all then also says, at a certain point, at what point we say: “you know, the goodwill is something which actually should be determined in the market.” I came across this a lot just recently by going back and looking at the value of housing.


Now, the value of housing isn’t very interesting. You could look at it and say: “how much does it take to build this house?” and you can add up all of the costs, and you can add the profit, and all this kind of thing, and say “the house is worth, you know $20,000.” Or “$200,000,” say. But then it turns out that it’s in a prime neighborhood and the value of the land is quite high, so you said “well, actually it’s worth $300,000 because the land is actually worth a $100,000.” But then you kind of say “but this isn’t a prime neighborhood” and it has a name like “Chelsea” or it has a name like, you know…sort of the “Upper West Side” or a “Upper East Side” or it has a telephone number which is a much highly regarded telephone number, so you add another $100,000 onto the price of the house. So the thing that actually cost, say $200,000 to build, ends up being worth $500,000 because you’ve got all these extra things which you’re adding on in terms of its reputation. Actually, the housing market works that way a lot.


What we’ve seen in San Francisco, and what we’ve seen in New York, and all the rest of it, is a lot of the value of the housing is given by this reputational value. By brand name value. Then, there’s an interesting kind of question, which happened in 2007-2008, when the housing market froze. At that point you couldn’t sell anything and at that point, the actual sale value of house was zero because nobody would buy it for anything. So what happens under those circumstances, when you go and ask the question: what’s the value of all of these mortgages? Which are sort of stacked away in financial institutions or have been passed on to people in terms of collateralized debt obligations? When actually, there’s no market for those housing there? Well, I went and looked and asked what happened to all of the housing which was held by Lehman Brothers or in Bear Stearns, and people put an arbitrary value on it. They kind of said: “well, if the market revives, then these houses would be worth – if there was a market – so much, so and so and so on so much.”


A lot of people put money value on a house which didn’t actually exist because there was no market for it at that particular moment. Now the market is revived since, and we’ve gone back and, you know, a lot of things have happened ever since. But at that moment, actually, the value of housing and the value of those mortgages was close to zero.


What this is suggesting is that price and value are not the same thing. That, therefore, we need some better way to talk about value. And there’s a way of talking about value which starts to actually argue that the value in the value-price relation is a complicated relation, and we need to revive some sort of questions about it. Because actually, in the market right now, in most mergers and acquisitions, and in the assessment of housing values and all the rest, we’re seeing this arbitrary component. This immaterial component which also carries over to commodities themselves because there is something called “branding value.” What’s the value of the brand name? And if you can establish a brand name and get it to be sort of a certain brand, then you can actually charge a monopoly price for it.


So that there’s a lot going on in the market right now which is about immaterial values which have a sort of a resonance with the nature of the price. This therefore means that even contemporary economics is working in a field where expected values, expectations and the like, are actually the immaterial “base,’ if you like, of a materiality which is the market exchange process. And that therefore you cannot actually calculate prices simply on the basis of what it costs to produce a Nike shoe.


How much of the the value of a Nike shoe is actually given in the market? how much of it is given by the amount of labor which is involved in its production? And all of the production costs which can be added up? This is actually, then, the big conundrum which contemporary economics is having to look at and is opening up that question of what and how is value constructed?


Now, Marx of course had a lot to say about value theory – and I’m not going to go into that here – but what I want to do is to say that, perfectly reasonably, people are asking: How come these things have a certain value? How come the value of a drug –

Mazzucato kind of says here – the value of a drug is arbitrarily arrived at in terms of its value in terms of saving a life? How do you value a life, and saving of a life? How do you say, therefore, this drug should be worth $1 million dollars a pill because it saves one life? Is that what human life is worth?


We’ve got these questions which are arising internal to the dynamics of contemporary capitalism. I want to argue that argument which is going on, and which is beginning to be opened up into terms of how we value things and why we value things in the way we do, that that opens up a big arena of debate in which, it seems to me, an alternative to capitalist valuation schemas, it has to be arrived at. Because an alternative to traditional valuation schemas has already opened up.


It’s already opened up in terms of “brand name,” it’s opened up in terms of “goodwill,” in mergers and acquisitions, it’s opened up in terms of what happens in the course of a crisis, it’s opened up even in an area like housing. Where the valuation of something is arrived at by a very particular kind of process, and there are standard procedures where housing value is determined – but nevertheless there’s an arbitrary component – and we see immediately that the valuation put on a house in, say, 2006, is completely different from the valuation that will be put upon it in 2009. When that collapse of value occurs, that then affects the price. It means that if somebody’s holding a mortgage on that which is a certain kind of price – and the price is not there – then you have a major crisis on your hands of valuation.


So I want to argue that there’s a crisis of valuation widespread in our society right now and into that comes back, actually, the moral question that the Ricardian socialists were often pretty- that if value is produced in a certain kind of way, then why are the direct producers of that value not rewarded? Why, if value is not produced in financial services, marketing gimmicks and advertising, and so on, if all of those are parasitic activities, then why are we not actually valuing the people who actually create the real things that we really need to survive at a different, decent level of living in contemporary times?


In other words, this question is opening up where I think common sense looks at it, and people kind of say, commonsensically: “look, I’m working very, very hard at producing X, and I’m getting very little for it, and I am looking at a situation where this person is, you know, making out like a bandit.”


The Lloyd Blankfein’s of this world are making out like bandits on the basis of an economy where they are actually a parasitic as opposed to producing value. What Mazzucato does is to say: “look, we have this problem!” And I’m going to read you the famous quote that comes from “Big Bill” Haywood, founder of the United States’ first industrial union. He says this: “The barbarous gold barons–they did not find the gold, they did not mine the gold, they did not mill the gold, but by some weird alchemy all the gold belonged to them.”


Now it seems to me to be the problem. Mazzucato is no raving radical. She’s attempting to bring back a debate on the value theory, and I think this debate opens up the possibility for many people on the left to actually say what is valuable in our society. What do we value? And how can we actually make sure that that value resides with those who are really creating it, as opposed to those who are posturing as if they create it when really their activities are very parasitic. So, we’ll come back to that, and how Marx looks at that question in a later session.


Thank you for joining me today, you’ve been listening to David Harvey’s Anti-Capitalist Chronicles, a Democracy at Work production. A special thank you to the wonderful Patreon community for supporting this project.


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