Contours of New Economic Theory

5. Hermetic Knowledge

Fragmentation of the social science disciplines is another compelling justification for a reframing of economic thought. The human quest for knowledge naturally proceeds from the observation of the specific and gradually broadens into the study of increasing concentric circles of generality. Mind exercises its power of concentration to examine the particular and then correlate in thought its relationship with other objects and events. Thus, the evolution of the natural sciences began with the observation of isolated phenomena – the motion of planets, properties of gases, circulation of blood – and gradually extended to the quest for more general laws of nature applicable to all phenomena of a particular type – physical, chem­ical, astronomic, biological, etc. The very success of this endeavor led to a proliferation of separate disciplines and an increasing tendency toward specialization. The greater the specialization, the greater the tendency to lose sight of the interconnections between differ­ent types of phenomena outside the narrow field of specialization. Thus, Political Economy evolved into many specialized branches of Economics tenuously bound together and increas­ingly divorced from one another and the wider political, social, cultural, psychological and ecological context within which all economic activity takes place. While Reality is one and indivisible, scientific knowledge became increasingly divided, multiple and fragmentary.

Sporadic efforts to overcome the barriers of hermetically divided disciplines led to many commendable efforts to promote interdisciplinary and cross-disciplinary studies. But a combination and intermixture of disciplinary perspectives are insufficient. Human beings and society do not lend themselves to be manufactured like the subassemblies of an automobile which are then combined together to form a finished working product. The human being cannot be subdivided into a political man, economic man and social man. Each human being is an integral whole in which all these dimensions are inseparable and interdependent, like the circulatory, respiratory, digestive, nervous and muscular systems of the human body. Society cannot be validly segmented into airtight political, economic and social compartments. Nor can it be reduced to a set of separate but interacting subsystems.

In the field of economics, the intellectual gulf created by disciplinary fragmentation has resulted in a practical gulf between institutions – the division and divorce of financial markets from the real economy, the divorce of employment from production, the divorce of economy from ecology, and the divorce of economy from governance, social welfare, and social stability. NET must necessarily widen the boundaries of economic theory to encompass governance, social welfare, culture and environment.

US President Franklin D. Roosevelt fully understood this when he addressed the American people just after he assumed office at the height of the banking crisis in March 1933. The failure of 6000 banks was not simply an economic problem and could not be addressed by a purely economic remedy. An infusion of funds to bolster failing institutions would not be sufficient. Radical political and legal action was necessary to alter the entire framework within which banking took place. Moreover, he had to restore the social confidence of Americans in their economic capacity and the psychological confidence of individuals in the trustworthiness of their financial institutions. FDR fully understood the inseparability of objective and subjective dimensions of reality, which quantum physicists were just beginning to puzzle over.

Society is an integral whole and can only be fully and effectively grasped by a knowledge which is integral. Thus, the primary objective of new economic theory must necessarily be inclusive of all human activities that impact on economic welfare, rather than arbitrarily confining its scope to the narrow field of direct economic activities. Equally, it needs to abandon the insistence of materialistic science on regarding human phenomena in mechanistic terms that deny or disregard the central place of subjective human perceptions, aspirations, values, attitudes and beliefs. The illusory barrier between the objective and subjective dimensions of human social reality has to be breached and give way to an integral conception.

The greatest scientific discoveries have been those which led to the unification of appar­ently disparate, unconnected phenomena within a wider, integrated framework. Newton’s laws unified motion and inertia. Maxwell’s electromagnetism unified magnetism and electric­ity. Einstein unified space and time, gravity and acceleration. The continuous battle between the contradictory positions of market fundamentalism and public regulation is currently viewed as contradictory, mutually exclusive perspectives. In reality individual freedom and social justice are complementary values that can be truly fulfilled only when they are reconciled at a deeper level. Human accomplishment is a harmonious product of synthesis between individual and collective effort. Individuals create, innovate and act most effectively in freedom, but the greatest and best results have always been achieved only when they interrelate, cooperate, work together and organize harmoniously for the mutual betterment of all. Organization necessitates effective rules and regulation.

The apparent conflict between freedom and regulation can be reconciled by a knowledge of the fundamental process of human energy conversion that governs all human accomplish­ment. All individual and social achievement involves the release of human energies, the focusing and direction of those energies into force, the channeling of that force through organizational structures and systems to generate effective power, and the conversion and expression of that power as individually and socially beneficial results.4

Effective social theory cannot be achieved merely by fostering inter-disciplinary and cross-disciplinary perspectives and study groups. It is necessary for all social sciences to join together in search of knowledge of the underlying and unifying trans-disciplinary principles and processes governing human interactions and society as a whole. One premise of the work of The World Academy of Art & Science is that the evolution of new economic theory can contribute largely to the evolution of a trans-disciplinary science of society.5

6. Contours of New Economic Theory

Until now the development of science has been a long, slow process proceeding by tiny incremental steps interspersed with sudden, radical, evolutionary leaps. The implications of the shift from geocentric to heliocentric theory, which fundamentally altered our view of the entire universe, are still being worked out four centuries after Copernicus’ heretical conception. It took a full century after the publication of Darwin’s The Origin of Species for Watson and Crick to discover the actual genetic mechanism for physical inheritance. Even today the full potential of the nascent science of genetics is only beginning to be realized. Nearly a century after the initial formulations of Quantum Theory by Planck, Einstein and Bohr, the fundamental nature of matter is still fraught with mystery. But in all three cases, the science that has emerged from these radical transitions is almost unrecognizably different from that which preceded it. Expanding the boundaries of knowledge not only increases but fundamentally alters our perception of what is already known.

It may be many decades before a newly formulated economic theory reaches even a moderate stage of maturity achieved by various branches of the natural sciences, but it is reasonable to assume that the new science of Economics which ultimately emerges will differ as radically from what we know today as the uncertainty principle, quantum entanglement, wave function collapse, quantum field theory and complementarity differ from the classical 18th century conceptions. Long before that stage is reached, we can reasonably expect NET to make concrete contributions of immense practical significance to the practice of Economics by enhancing our knowledge of both the fundamental processes by which wealth creation is generated in the microcosm of individual and social behavior and in the macrocosm of global society. It is much too soon to predict what this future science will become. This paper attempts merely to suggest some of the most likely changes in the basic concepts and boundary lines that define the yet to emerge discipline of NET.

6.1. Objectives

Contemporary Economics is replete with implicit assumptions that are commonly mistaken for established facts. NET should commence by making explicit the discussion and debate regarding the fundamental premises on which it is based. The most fundamental premise must be an explicit statement regarding the objectives of economic science.

The primary objective of economic activity must be enhanced economic security, welfare and well-being of the entire global community, present and future, rather than production or growth for their own sake, whose net contribution to human welfare can and often is negative.

Human welfare directly encompasses a wider range of material and social needs related to safety, health, education, social security and indirectly encompasses political stability, democratic rights, social justice and development of individual and social capabilities. The soundness of economic theory and policy must be evaluated in terms of its contribution to attainment of these wider social objectives. Persistent poverty, youth unemployment and rising inequality are incompatible with human security, welfare and well-being for all.

Individual well-being encompasses higher level social, cultural, psychological and spiritual aspirations for freedom of choice, respect, free association, acquisition of knowledge, enjoyment, creative self-expression, individual development and self-realization. An economic system that promotes rising levels of personal insecurity, lack of opportunities, employment and increasing concentration of wealth and social power is incompatible with this objective.

6.2. Premises

NET should make explicit the wider social context within which economic activity takes place and the fundamental social concepts and processes applicable to all human activities. The partial list of premises given below includes factors that fall outside the traditional boundaries of formulated economic theory, although virtually all are implicitly recognized as determinates of economic performance. Each of these premises points to a factor that actually impacts on the nature and results of human activity in the real world. Each possesses immense potential power for enhancing or diminishing economic performance.

  • Like Newtonian Physics, contemporary Economics is centered around and largely confined to the middle ground between the human microcosm and macrocosm. As in the case of Physics, we are likely to discover in future that the regions which lie beyond the boundaries of current theory contain untold power for enhancing economic performance, as our study of atoms and stars has revealed untold sources of material energy. ‘Newtonian Economics’ is characterized by a quest for precision and certainty for control, whereas NET will shift the emphasis to risk assessment, management of uncertainty and unleashing of dynamic social processes in an effort to maximize human security and accelerate creative social transformations.
  • Economic activity and wealth creation are specific expressions of a more general human capacity for conscious, purposeful behavior of individual human beings within a wider organized social collective.
  • The principles of initiative, innovation, creativity, development and evolution occurring in the field of economic activity are expressions of fundamental human capacities for accomplishment, growth, development and evolution.
  • The energy that fuels economic activity is one expression of the fundamental human energy that is the driving force for all human development. All human accomplishment involves the conversion of human energy into results by a common process.6
  • Economy is a subset of society. Therefore the optimum performance of the economy depends on the fullest development and optimal operation of all other sectors and aspects of society, e.g. education, healthcare, law, governance, etc.
  • Each individual is an infinitely complex and qualitatively unique microcosm with the potential to beneficially relate and support the entire society. The eminent philosopher of science Karl Popper stressed the centrality of the individual in the social sciences which has been largely ignored by scientific formulations of economics (and most other social sciences today). While history is replete with tales of remarkable individual accomplishment, social science has not yet fully recognized and come to terms with the central and transformative role of the individual as the catalyst for all social advancement. In practice, economics deals with the potential of individuals primarily by advocating a policy that encourages entrepreneurship. But this represents only a fringe of the potential for stimulating wealth generation. In practice we frequently observe the remarkable power of a single individual to change the world economically by generating enormous wealth, founding new industries, creating new products and services, developing the social network and delivery system, and other tangible economic benefits for society at large. Thomas Edison, J. P. Morgan, Henry Ford, Julius Rosenwald, Alfred Sloan, Fred Smith, Bill Marriott, Steve Jobs, Larry Page, and Mark Zuckerberg are just a few of a countless number of outstanding individuals at different levels and in different places whose momentous contributions are practically ignored by contemporary economic science. NET must restore individuality to a central place in theory and practice.On October 31, 1907 J. P. Morgan gathered a group of bankers in a locked room demanding they pool another $25 million to finance commitments to prevent massive payment defaults and panic selling on the New York Stock Exchange. The money arrived just in the nick of time to finance transactions during the last hour of the day’s trading. Without any official authority, Morgan lveraged his reputation for integrity and the personal trust his colleagues had in him to save NYSE, saving financial institutions and the entire US banking system from collapse.7
  • Society is an infinitely vast and complex macrocosm which attains its greatest creative energy for accomplishment by nurturing and supporting the fullest development and self-expression of every one of its individual members.
  • Society is a complex social organization capable of directing and converting that energy into effective power to maximize human welfare and well-being. The objectives of NET can best be met by a social organization that enables each individual human being to fully develop and express his individual capacities and endowments in a social system that promotes maximum synergy, cooperation and harmony between individuals, communities, nations and humanity as a whole.8
  • The fundamental unit of economic activity, like that of all purposeful human endeavor, is the individual act which is linked together with other acts to form chains of activity, coordinated and standardized to constitute systems, organized into specialized functions and layers of authority, which are linked together into formal organizations and informal networks, all of which function within wider fields of economic, political, social and cultural activities and institutions.
  • Each individual act in itself is a complex microcosm composed of and influenced by conscious intentions, aspirations, motivational energy, values, ideas, knowledge, opinions, attitudes, interests, impulses, sensations and habits that influence every human action.
  • The characteristics and capabilities of any economic system depend on the development of these other spheres and the relationship of economy to other forms of social activity. The following linkages are of particular importance to the functioning of economy: peace and security from external threats and interference; a representative system of governance that maximizes the welfare of the entire social collective rather than restricting privileges and powers to an élite or moneyed class; a legal system that maximizes freedom to individuals while balancing it with equity and fairness to all others; an educational system that supports fullest development of the knowledge, skills and capacities of all its citizens; an accessible, affordable healthcare system that promotes the physical and mental health of all citizens; a social system that encourages fullest development and self-expression of the individual and accords freedom, recognition and rewards for outstanding achievement; and a cultural milieu that promotes values of independent thinking, enterprise, innovation, risk-taking, cooperation, responsibility, integrity and selflessness in relations between its members.

7. Resources

Resources are factors which human beings recognize as having the potential to contrib­ute to value and wealth creation. Human mental awareness of that potential is the essential determinate of a resource. Changes in that awareness alter the productive potential of a resource. This implies that something becomes a resource only when and in the measure the human mind recognizes it as such and that development of the mind’s scientific and creative capaci­ties has the potential to continuously enhance the productive potential of those things it comes to regard as resources.

NET should be based on a wider conception of resources that includes not only natural capital (land, minerals, forests), financial capital, and man-made capital (cities, factories, infrastructure), but also human and social forms of capital (human energy, attitudes, organizations, institutions, networks, systems, customs), mental or intellectual capital (knowledge, skill and technology), cultural capital (values and customs) and psychological capital (creative aptitude and capacities of individual members).

This wider conception has implications that need to be explicitly examined:

  • Sustainable development can best be achieved by the progressive shift in dependence from physical resources to social and human forms of capital.
  • Physical resources may be subject to inherent limits, but there is no inherent limit to the capacity of society to enhance the productivity with which those resources are utilized by the fuller development of human and social capital, knowledge, technology, social organization and skill.
  • Society is a resource of unlimited productive potential derived from the interactions, exchange, association and cooperation among its members through informal and organized activities, rules, laws, procedures, systems and institutions. Anything that facilitates or increases the ease and frequency of relationship between people has the potential to enhance overall social productivity.
  • There are no inherent limits to the mental and psychological capacity for development, knowledge, creativity and innovation of the individual or the collective.

Agriculture was invented about 8000 BC when the human mind recognized that the effects achieved by Nature could be reproduced by systematic planting of crops on empty land. As a result arable land came to be regarded as a precious vital natural resource. Ten millennia later it was realized that the empty space on a webpage located in cyberspace had vast productive potential as a place for advertising. When Sergey Brin and Larry Page launched an innovative new service for small advertisers called Adwords in 2000 by linking user search terms with related advertiser offerings, they revolutionized advertising and began the development of Google into a $69 billion corporation in 2014, of which $59 billion was derived from advertising revenue.

The view put forth in this paper is that the validity of social science must be judged in terms of its impact on human beings. It must be human-centered in its objectives and values. But it also supports the conclusion of the World Academy that effective economic theory must shift its basis from an inordinate reliance on financial and technological capital to recognition of the central role of Human Capital – individual and social – as the ultimate source and motive power of all wealth creation, welfare and well-being. Other forms of capital – natural, technological, organizational and financial – are functions of human capital – of the mental development, ingenuity and social inventiveness of human beings. Technology and financial capital dominated economic thought during the 19th century when a massive concentration of wealth was required for investment in physical infrastructure and huge industrial enterprisesand labor was largely regarded as a dispensable resource measured in horse power. In the still emerging knowledge-based service economy, human capital and social institutions will be the primary drivers and determinates of real economic development.

4. Garry Jacobs, Winston Nagan and Alberto Zucconi, “Unification in Social Sciences: Search for a Science of Society,” Cadmus 2, no. 3 (2014): 8-12
5. Jacobs, Nagan and Zucconi, “Unification in Social Sciences: Search for a Science of Society,” 1
6. Harlan Cleveland and Garry Jacobs, Human Choice: The Genetic Code for Social Development (Minneapolis: The World Academy of Art & Science, 1999), 5
7. Jean Strouse, Morgan: American Financier (New York: Harper Perennial, 2000), 581
8. Cleveland and Jacobs, Human Choice: The Genetic Code for Social Development, 9-12

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