Contours of New Economic Theory


The need for a paradigm change in economic thought has been well established, but the contours and fundamental characteristics of a new paradigm in economic theory are yet to be worked out. This article views this transition as an inevitable expression of the maturation of the social sciences into an integrated trans-disciplinary science of society founded on common underlying principles, premises and processes. It calls for evolution of human-centered, value-based economic theory whose objective is to maximize human economic security, welfare and well-being rather than economic growth. It emphasizes the determinative role of fundamental creative social processes expressing in all fields of human endeavor. It argues for extending the boundaries of economics to encompass the entire gamut of political, legal, social, psychological, intellectual, organizational and ecological factors that directly and indirectly contribute to economic security, welfare and well-being. The article concludes with a list of anticipated practical implications.

1. Need & Scope of New Economic Theory

The objective of the XII International Colloquium in Gainesville, Florida, USA is to explore alternative visions of sustainable development and alternative economic theories that more effectively translate economic activity into sustainable models of economic security and equitable development for humanity as a whole. The seemingly modest objective implies the need for radical change in economic thought and policy. It acknowledges the fact that current theory and policy are inconsistent with the goal of sustainable development for all human beings. Current theory is focused on the narrow objective of economic growth rather than the broader inclusive objective of meeting human needs and aspirations for survival, security and development. Current theory is preoccupied with enhancing economic performance in the here and now with little consideration for its impact and implications for the future. Fulfillment of this apparently modest objective would have momentous consequences for humanity.

A century ago the science of Physics passed through a critical evolutionary transition which established the foundation for remarkable theoretical achievements and practical applications during the 20th century. A “New Physics” emerged which placed all the partial discoveries of the past in a new and wider perspective. Relativity Theory framed the outer boundaries of the infinite macrocosm within which the fixed laws of Newtonian Physics operate and beyond which their truths are no longer valid. Quantum Mechanics zoomed into the infinitesimal microcosm, uncovering the inner world of uncertainty, complexity and interactivity which underlies the apparent stability and predictability of everyday material reality, decomposing particles into wave-fields of energy and confirming the linkage between objective and subjective dimensions of reality. Though still far from mature and complete, the reframing of Physics has already led to new processes and technologies of immense power and practical importance to humanity.

Today there are multiple indications that the science of Economics is approaching a similar critical transition point. Though far less mature than the science of Physics was a hundred years ago, the failure of current theory to effectively address the pressing economic problems confronting humanity today compels us to challenge the conventional assumptions and boundaries of Economics and press for wider and deeper formulations with greater effective power to serve humanity in the 21st century. Economics has failed to generate effective policies for the eradication of poverty, generation of full employment, economic security or ecological sustainability.

Equally compelling is its failure to provide a viable path for fulfillment of humanity’s unrealized aspirations, leaving an entire generation of youth frustrated, discouraged and confused. Mainstream Economics remains caught in a polemic, dialectic debate between opposing schools of thought which cling to outmoded conceptions and insist on confining inquiry within narrow conventional boundaries, which are themselves a primary source of their insufficiency.

The consequences and side effects of these failures have practical repercussions that are retarding and undermining the nascent emergence of global peaceful co-existence, the functioning of democracy, the political integrity of states, the stability of societies, the psychological security of people everywhere, and the preservation of the physical environment. The geocentric model of the universe served fairly well as the basis for constructing calendars and explaining the motion of sun, moon and planets, but it was a totally inadequate basis for a wider and deeper understanding of our place in the universe and for recent technological achievements in telecommunications and space travel. However useful these concepts have been for specific purposes and limited applications, the simple truth is the economic theories and models do not match or even approximate economic and social reality and human needs in the 21st century.

This harsh assessment is not intended as a wholesale rejection of existing economic thought, any more than the discoveries of Relativity and Quantum mechanics constituted a refutation of classical Physics. Rather, the purpose is to establish the need for new thinking outside the boundaries of prevailing economic theory and to point to some essential elements and likely lines of its future development.

2. Natural and Social Sciences

Nor is the intention to single out Economics for criticism. The need for new thinking more generally applies to all fields of social science. This should not be surprising. The natural sciences have at least a 200 year headstart over the social sciences in formulation of a cohesive and integrated view of the fields they study. Inter-disciplinarity has become an inherent characteristic of the natural sciences since each is based on the same fundamental laws and principles. The same laws of Physics and Chemistry are incorporated and applied in widely diverse fields such as biology, physiology, meteorology, oceanography and ecology. Whereas each of the social sciences operates in a hermetic space based on its own principles and assumptions about the nature of humanity and society.

Moreover, the complexity of material phenomena pales into insignificance before the greater complexity of human phenomena. Physics and Chemistry are concerned only with the interplay of material structures, forces and processes; whereas the human sciences must take into account the intricate interrelationships and interactions between physical, biological, subconscious and conscious mental, political, economic, technological, social and cultural factors. As anthropologist Margaret Mead emphasized, the universality of human nature is subject to wide cultural variations and the typology of human psychological characteristics constantly confronts unanticipated expressions of individuality and uniqueness unknown in lower orders of life and material nature. Every electron and every atom of iron or gold possesses the same characteristics and patterns of behavior, but every human being, social activity and structure is powerfully influenced by a plethora of factors that defy generalized assumptions. For this reason the attempt to reduce the social sciences to the mathematical precision of material sciences has led social scientists to overlook the rich variety of human phenomena and seek to compress them into the straightjacket of mechanistic, materialistic particles and processes.

3. Shifting Boundaries of Economy

The increasing speed of social evolution has added significantly to the challenge confronting all fields of social science in myriad ways. First is the changing nature of economic activity itself. Modern economic thought was born at the beginning of the Industrial Revolution. It was strongly influenced by the notion that industrial production consisting of units of products produced for a measurable cost and sold at a specific point in time constitutes the mainspring of economic activity. As Orio Giarini has long argued, with the rise of the modern service economy – which now constitutes the largest portion of economic activity – these fundamental assumptions are less and less valid.1 He pointed out that the service economy is not an outgrowth of the industrial economy but rather a system which permeates that structure, making it predominately depend on the performance of service functions both within and outside the production process. These service functions are far more dependent on quality of human and social capital and other intangible resources than those of the industrial economy.

A change in the concept of economic time is one of the important implications of the shift from manufacturing to services. In the service economy, many economic events no longer lend themselves to point-in-time analysis. Major fields of the service sector – financial services, education, healthcare, telecommunications, transport – consist of huge national and international systems with high fixed costs delivering services over a prolonged period of utilization time that begins in the distant past with fundamental research long before commencement of service delivery and extends far into the future before disposal, remediation and full assessment of risks and liabilities can be reliably determined. The emphasis of the industrial economy on physical processing of finite measurable objects at particular points in time is progressively being replaced by an emphasis on managing risks and uncertainty over an indefinable time-span.2

Monetarization represents another invisible boundary line which has restricted the scope of mainstream economics and limited its capacity to directly address issues of human security and welfare. Economics emerged at a time when society was far less integrated than it is today. Agriculture remained the principal economic activity until late in the 19th century and a large portion of it was production for self-consumption rather than trade. By one estimate only about fifteen percent of productive activity was monetarized at the time when Wealth of Nations was published. Modelled after the quantitative physical sciences, economic thought focused only on the monetarized sector, which lent itself to measurement. Neither then nor now does the monetarized sector adequately reflect the whole impact of human activity on economic welfare. Rather, its failure to take into account deducted costs, including the non-monetarized resources consumed in the process of generated monetarized wealth, makes it a grossly inadequate and deceptively misleading basis for promoting real welfare and well-being.3 For example, rising levels of water pollution has spawned a $60-80 billion bottled water industry, an increase in monetarized activity that partly reflects declin­ing human welfare due to pollution, rather than higher standards of living.

The focus of economic study must encompass all activities that impact on the primary objective, including those in the non-monetarized household sector. Indeed, the two sectors are in constant interaction and there is a continuous shift of values between them. Rising levels of participation by women in the workforce increase the monetarized sector two-fold, by converting the housewife into a paid worker and by transforming some housework from unpaid family labor into paid services provided by others. The total amount of work done may remain the same and quality of life may actually be diminished, but the shift to monetarization records a positive gain.

Rapid globalization has introduced another factor compelling a fundamental rethink of Economics. It has shifted the boundaries of economic thought and policy from the nation to the globe. The notion of national economies governed by national level public policies and relating to the rest of the world through semi-porous membranes is less and less relevant to an increasingly interconnected world in which trans-national corporations, global markets, and the growing realization that all human beings on the planet must live together, share resources and accept collective responsibility for managing the global commons.

4. Value-based Science

The natural and social sciences differ in another very significant way. The quest of natural science is to discover the immutable natural laws governing the world around us. The role of the natural scientist is as an impartial, objective observer. Whereas the notion of immutable Newtonian laws of nature has no place in the social sciences, which study the world and behavior of conscious human beings, whose habits and propensities are at least partially subject to conscious choice, which can change over time, can undergo voluntary modification and conscious evolution.

All scientific inquiry begins with a study of phenomena as they exist to understand their characteristics, structures and the processes by which they function. Science then proceeds to examine and experiment with ways of utilizing this knowledge to harness or alter these characteristics and processes for the benefit of humanity. However, in the natural sciences, the ultimate standard for evaluating knowledge is the extent to which it conforms to reality, regardless of whether that knowledge has any practical applications or benefits to humanity. Whereas in the social sciences, the primary role of the social scientist is to discover the means to alter those principles and processes or create new ones that more effectively fulfill human needs and aspirations.

Philosopher of science Karl Popper acknowledged that social science can learn scientific method from the natural sciences but cautioned against misguided naturalism. He argued that practical success, not just theoretical understanding, must be primary in the social sci­ences. He emphasized the ethical dimension of social sciences – called for moral responsibility for outcomes. It is noteworthy that Adam Smith regarded himself as a moral philosopher, not an economist. Smith was looking for ways to enhance human welfare, not seeking to formulate universal laws of economy true for all nations, all times for all people.

Knowledge in the social sciences must be judged principally in terms of its efficacy in fostering human welfare and well-being. The objective of New Economic Theory (NET) is to formulate the theoretical and practical knowledge required to maximize economic security, human welfare and individual well-being of all humanity in a manner consistent with universal human rights, cultural diversity and civilizational values. Economic security ensures the minimum material needs. Human welfare encompasses a wider range of material and social needs related to safety, health, education, and social security. Individual well-being encompasses higher level social, cultural, psychological and spiritual aspirations for freedom of choice, respect, free association, enjoyment, creative self-expression, individual development and self-realization. The objective of economics is not production for its own sake or economic growth for growth’s sake. The goal is not to discover immutable, universal, natural laws of economy based on any existing precedent, model or theory, but to identify the laws and first principles of a social system suitable to achieve the primary objective stated above.

Values are not merely utopian ideals or ethical principles. They are the highest abstract mental formulations of governing life principles with immense power for practical accomplishment. They represent the quintessence of humanity’s acquired wisdom regarding the fundamental basis for human survival, growth, development and evolution.

At the beginning of the 20th century, Julius Rosenwald joined a small Midwestern Chicago mail order house. One of his first acts was to replace the prevalent commercial doctrine of “Buyer Beware” with a radically new corporate policy “Satisfaction guaranteed or your money back”. Within 20 years, the value of unconditional customer satisfactionpropelled the growth of Sears Roebuck to the position of the largest retailer in the entire world. A century later this value has become the global standard for successful business. Values are ideals which possess the power of practical wisdom.

A new economics will need to re-examine and redefine many of the fundamental values on which the discipline is based. Central importance will necessarily be accorded to those factors which contribute to enhancing the welfare and well-being of human beings. The values on which NET is based should be universally recognized human values, including

  1. Respect for Humanity – the inestimable value and unlimited developmental potential of the human being. Human welfare is the central objective. Human capital is the most precious and indispensable resource for achieving it.
  2. Economic rights – the inherent right of every human being to economic security, welfare and well-being.
  3. Inclusiveness – economic security and welfare for all human beings
  4. Sustainability – protection of the environment and ensuring the equal rights of future generations.
  5. Freedom of choice – maximum individual freedom for initiative and choice compatible with the welfare of the entire collective.
  6. Equity & Fairness – equal protection of rights and equal opportunity for all
  7. Peace and social stability – an economy that promotes peace, stability and social harmony
  8. Rights of the human collective – the resources of earth belong to humanity as a whole and should be utilized for the benefit of all.


Garry Jacobs: CEO, World Academy of Art & Science and World University Consortium; Vice President, The Mother’s Service Society, India
1. Orio Giarini and Walter Stahel, The Limits to Certainty (Boston: Kluwer Academic Publishers, 1993)
2. Orio Giarini and Garry Jacobs, “The Evolution of Wealth & Human Security: The Paradox of Value and Uncertainty,” Cadmus1, no. 3 (2011): 49-50
3. Giarini and Jacobs, “The Evolution of Wealth & Human Security: The Paradox of Value and Uncertainty,” 49

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