Mariana Mazzucato is an American economist who now plies her trade at University College London after a recent transfer from Sussex (fee undisclosed). Her previous book, The Entrepreneurial State, was well received on the centre left and caused a modest stir in policy circles. Its argument was that many innovations we think of as great private-sector contributions to growth and human welfare, such as the internet, were in fact nurtured in the public sector or created with the help of government grants.

The best examples – Tesla is one company that benefited from a small-business loan – are found in the USA, but the thesis appealed to this lapsed UK civil servant, tired of the casual denigration of the public sector in business circles and in most of the media. Unhappily, the major project I was involved in funding during my days in the Treasury was Concorde rather than the internet, which even Mazzucato acknowledges was a less than shining example of government-led innovation.

Her earlier argument is reprised here, rather in the manner of a hit single incorporated in a subsequent album. But The Value of Everything is a more ambitious production, which attempts to redefine our understanding of how value is created in a modern economy and, in doing so, to provide the basis for a different type of economic policy. It is a book that might appeal to some in the Labour Party, providing as it does a more sophisticated justification than most for expanding the role of the state in a modern economy.

She begins lazily with a short reprise of the global financial crisis, taking a few potshots at Goldman Sachs in particular and bankers in general, repeating the claim that ‘no banker was jailed’. That is not quite true, and in any case we normally jail people for crimes, not for greed and foolishness. She also maintains that income inequality is rising relentlessly, though the Institute for Fiscal Studies regularly reminds us that, in the UK at least, income inequality has been falling slightly since the financial crisis.

But these doubtful claims are not central to her argument. The core of the book is a survey of the way economists, from Adam Smith and David Ricardo onwards, have addressed the tricky question of how to assess the contributions of different sectors to economic growth and societal development. She notes that the so-called production boundary, which is drawn to divide productive output from services and parasitic activity, has moved around over the last three hundred years. There is an interesting and concise description of Marx’s theory of surplus value, though Marx is curiously introduced as ‘a German who did much of his greatest work in England’, which makes one wonder who the intended audience might be.

She is skilled at rendering some complex arguments into prose that is comprehensible to the general reader. From this historical discussion we move on, via a now-conventional deconstruction of the concept of GDP (a gift to the world from a Belarusian economist working for the US government), to a provocative review of the way in which the output of the financial sector has been measured. She is quite right to point out that this is tricky territory and that definitions have been changed several times in the national accounts, here and elsewhere. The current definition arguably flatters finance by exaggerating the value it adds. This may well have contributed to the growing financialisation of Western economies, which in turn meant that the consequences of the 2008 crisis were more severe than they would otherwise have been. It’s hard to prove and I am not sure she has uncovered a sinister conspiracy, but it is a plausible argument, forcefully advanced.

Mazzucato exaggerates at times. It is slightly silly to say that ‘it wasn’t until after the 2008 crisis that the Bank of England admitted that “loans create deposits”’. We did have a suspicion that something of that nature was occurring as far back as the 1990s, when I was deputy governor. But she offers a challenging alternative to the prevailing narrative.

Where does it lead, in policy terms? She is dismissive of the efforts made to reregulate the financial sector, but does not offer a coherent and practical alternative. I found her on stronger ground in arguing that we should be much more sceptical about the conventional arguments for smaller government. She is surely right to maintain that it matters much more what the government does with its money than how big it is. Much government investment is productive, both directly and indirectly. There are some highly productive countries in which the state plays a large role in the economy and some dysfunctional societies where the state is small. Both major political parties could benefit from a clearer idea of what they see as the role of the state. The Labour Party tends to emphasise the need for more state jobs, whatever they produce, while the Conservatives remain impaled on the Private Finance Initiative, about which Mazzucato is rightly scathing.

Unfortunately, we may need to await volume three in this putative series for a worked-through model of an alternative system. The Value of Everything ends rather limply with a short section promisingly entitled ‘A Better Future for All’ (hands up all those against). The summary is that ‘the creation of value is collective, that official policy should be market-making not market-repairing and that real progress requires a dynamic division of labour focused on the problems that twenty-first-century societies are facing’. And what we need is ‘an economics of hope’. Amen to all that, but where is the beef? Perhaps we can hope for a steak or two in due course from her new Institute for Innovation and Public Purpose at UCL.