I. The Broken Ledger: Who Creates Value, and Who Gets Paid

The question is older than economics, and it is the question economics was founded to answer: who creates value, and are they paid for it?

Adam Smith and David Ricardo thought the answer lay in labour. The marginalists thought it lay in the last unit of whatever was added. John Bates Clark, at the end of the nineteenth century, wrote the most beautiful sentence in the whole debate. The natural law of distribution, he argued, gives “to each what he creates.” It was a normative ideal dressed as a description. Clark believed that competitive markets would deliver it automatically. They did not.

The wedge

Here is the simplest measurement of the gap between Clark’s ideal and the world we actually live in. Between 1979 and 2017, net productivity in the United States kept climbing, and median compensation did not keep up. The wedge between the two lines opened to roughly 43 percentage points. Had the typical worker’s hourly compensation tracked the value their economy was producing, it would have been about $33 in 2017 instead of about $23. Nearly ten dollars an hour, every hour, for the median worker, went somewhere else.

You can argue about the measurement. Economists do: how to deflate, what counts as compensation, whether productivity is being mismeasured. The more careful studies find that pay and productivity are still partly linked for the typical worker. But no serious reading of the data says that the typical person is credited with what they create. The link has been stretched until it is barely a link at all.

And this is the aggregate story, the one that averages everything out. Go down to the level of a single team, and it gets worse.

Credit after the fact

Think about the last serious project you were part of. A product launch, a policy, a paper, a building. Now answer honestly: when the rewards were handed out (the bonuses, the promotions, the author order, the speaking slot, the next budget), were they decided according to rules everyone knew before the work began?

Almost certainly not. They were decided afterwards. By a manager, a committee, a senior partner, a principal investigator. According to criteria that were partly stated, partly implied, and partly invented on the spot. The person who fixed the thing at 2 a.m. and the person who presented it to the board were weighed on scales that nobody could see. Those who were close to the money, close to the decision, close to the story, did well. Those who did the maintenance, the mentoring, the invisible glue work, did not.

This is not a moral failing of managers. It is a structural feature of how we assign credit. Value is measured after the fact, by the powerful, against goals that were never made explicit. Under those conditions the outcome is predictable. Credit flows toward visibility and proximity, not toward contribution.

Mariana Mazzucato has spent a decade showing the same pattern at the scale of whole economies. Whoever defines what counts as “productive” controls the distribution of the rewards. Public research that made the smartphone possible goes uncredited, while those who capture value late in the chain present themselves as its creators. The line between value creation and value extraction is drawn by whoever holds the ledger.

Why meritocracy did not fix it

We already have a word for the idea that rewards should follow contribution. It is meritocracy, and it has failed in a specific, instructive way.

Michael Young coined “meritocracy” in 1958 as satire. His book imagined a Britain where intelligence plus effort had become the only measure of a person, and it ended with the meritocrats overthrown by the people they had ranked. Scholars largely ignored the book. The word entered the language overnight, and within two decades it had flipped: the warning became an ideal, then a justification for the winners.

Meritocracy failed for three reasons, and each of them is a lesson.

First, it measured the wrong thing. Merit is a latent property of a person: talent, credentials, IQ, the right schools. It is an estimate of what someone might contribute, frozen into a status. Frank Knight saw the problem in 1923. Productive capacity, he wrote, comes from “a complex mixture of inheritance, luck, and effort, probably in that order of relative importance.” Only the effort has any ethical claim.

Second, it measured on one scale. Merit became a single ladder, and as Raymond Williams put it, a ladder “is a device that can only be used individually; you go up the ladder alone.” One scale means one hierarchy, and one hierarchy means humiliation for everyone near the bottom. Michael Sandel and Daniel Markovits have documented where that leads: winners who believe they deserve everything, and losers told that they deserve nothing.

Third, and most important, nobody ever agreed what merit was. It was defined by those who already had it.

The calculation problem

Why have we put up with this for so long? Because the alternative was impossible.

To credit people by the value they actually created, you would need to decompose a collaborative outcome into its contributions. You would need to know, for each piece of work, how much it moved the goal. For most of history that information did not exist. Work happened in heads, in rooms, on paper, and left almost no trace. The only feasible way to allocate credit was to hand the job to a hierarchy (a boss decides) or to a market (a price decides), and to accept whatever unfairness came with it.

The planners of the twentieth century hit the same wall from the other side. They wanted to set goals centrally and measure progress continuously, and they drowned in data they could not collect or process. In 1971, Stafford Beer’s Cybersyn project in Chile tried to wire a national economy’s factories to a control room using telex lines. It was a glimpse of the future, and it was decades early.

That wall is coming down. Work now leaves a trace. The collaborative outcome of a modern organisation is recorded in version control, in ticket systems, in documents with edit histories, in message threads, in the logs of the software agents that increasingly do the work alongside us. Decomposing value is no longer computationally impossible. It is merely unaddressed.

And that is the danger. When something becomes technically possible, it gets built, whether or not anybody agrees on how it should work. If we do not decide how value should be credited, the answer will be decided for us, inside systems we cannot see.

The broken ledger is about to be rewritten. The only question is who holds the pen.