The Value of Everything summary

Is all work productive, or is some unproductive?

This simple-sounding question has been debated since the seventeenth century.

The “father of economics,” François Quesnay, believed that all value came from the land. So, he argued, only work like agriculture and mining was productive. All other work was just moving that product around in exchange for money.

Quesnay theorized that money and goods circulated between three classes: workers on the land; artisans, who make things with the raw materials; and what he called the “sterile class” – nobility and landlords. This final class simply extracts value from the economy as rent, because they own the land. In other words, they’re unproductive.

The key message here is: For early economists, value was created by workers, and extracted by landlords.

Economic theories evolved during the eighteenth and nineteenth centuries, but Quesnay’s view that landlords were unproductive prevailed for a long time. The classical economists Adam Smith, David Ricardo, and Karl Marx all agreed with him. In fact, Smith’s famous ideal of a free market originally meant “free from rent.”

According to Smith, you could earn money in three ways: as wages, profits, or rent. At the heart of Smith’s economy were manufacturers. The truly productive force, they generated a surplus large enough that the unproductive landlords and aristocrats could live off it as well.

Smith didn’t object to wealth per se. But he believed that money should be reinvested into productive industries – that way, workers could produce even more, and the wealth of everyone could grow. But when wealthy people, like landlords, hoarded money or spent it unwisely, that was bad for the economy – all it did was take money out of circulation.

David Ricardo built on Smith’s work in the early nineteenth century. He defined rent as profit gained from a monopoly of something scarce. And he observed the particular way in which rent worked: if a landlord owned good land, then farmers would compete with each other to rent it – meaning that rental prices would keep on rising.

Still used today, Ricardo’s theory doesn’t just apply to the bill you pay your landlord. The same principle works for any industry in monopoly control – think of the rising prices of patented drugs, and even the price of gas, strongly influenced by the members of OPEC – the oil producing nations. It’s all a form of rent – or, to put it another way, value extraction.

But what actually is value? The meaning of the term has changed a lot since the eras of Smith and Ricardo. And that’s what we’ll talk about in the next blink.