Contours of New Economic Theory

8. Process of Wealth Creation

Economic theory must necessarily be premised on a conception of the process of wealth creation. NET can draw valuable insights by tracing the stages of the evolution in humanity’s capacity for wealth creation. The following list illustrates various aspects of the process of wealth creation, many of which are ignored by conventional economic policy but which powerfully contribute to economic development and have immense untapped potential for further enhancing human welfare and well-being.

  • Observation of natural processes enhances humanity’s capacity to promote its welfare and well-being, e.g. observing the places and seasons where food grows, animals graze or fish swim. Observation spurs human thought. Thought is the process of linking, relating and coordinating two or more facts by a common principle. Close observation of Nature led human beings to first conceive of the possibility of imitating and improving on natural processes for food production, giving rise to the birth of animal husbandry and later agriculture.
  • Production and transformation of resources by individuals and groups of individuals working in tandem make possible achievements that no individual can achieve by himself or herself. Division and specialization of function and skill among individuals and groups within a wider system of cooperation enable multiple tasks to be performed simultaneously and higher levels of skill to be developed and transferred.
  • Exchange among individuals and groups that enables each to produce in excess of their personal need, on which they have a comparative advantage and exchange it for other goods and services produced or obtained by others. Exchange between individuals, organizations and groups over a wider geographic area enhances the incentives for maximum individual production and expands the range of goods and services for which each individual can exchange what he produces.
  • Development and application of tools, technology and know-how have always been associated with humanity’s economic and social advancement – from the club, lever and knife to the most sophisticated mechanical and electronic devices, technology has been central to human social evolution. Yet it is only during the early 20th century that science-based R&D became an essential and integral part of business development. Economic thought still lacks a coherent theory designed to maximize the process of human invention, innovation, creativity, imitation and adaption.
  • Human relationship and interconnectivity have always been the essential basis and driving force for economic development. Greater ease, extended geographic reach, growing frequency, increasing variety, complexity and integration of human interactions are a primary source of wealth creation. Social organizations enhance the effectiveness of human relationships. The invention of new technologies for social organization has been at least as important as – arguably more so – the invention of physical tools and processes. Among the most powerful have been the organizational technologies we call language, cities, markets, money and the Internet. These in turn have led to a plethora of offshoots and specialized social institutions such as wholesale and retail outlets, commodity exchanges, stock markets, warehouses, etc.
  • The invention and widespread introduction of various forms of money to facilitate exchange of products, movement of capital, and storage of value mark an important stage in the evolution of economy. Yet inadequate attention has been given by all the social sciences to the properties and wider role of money as a social institution, the sources of its unique power, its capacity for inter-convertibility of economic power with other forms of social power, and its tendency to dominate them.
  • Regulation is an inherent power of society essential for the full development of any activity. Informal activities, cooperation and exchange between individuals and groups acquire far greater power when supported and governed by an effective system of laws, regulations, procedures and standards to protect the rights of individuals and groups involved.
  • Integration refers to the highest level of organized interrelationship in which each part, aspect, system, organ, activity, process and dimension interrelates and adapts to every other part of the whole, as illustrated by the perfect integration of the organs, systems and processes of the human body. The development and integration of technical education to support agricultural and industrial development in 19th century America were a major factor in the sudden and dramatic rise of the US to global economic prominence. The potential for further enhancing the levels of coordination and integration between different factors is given even greater impetus by the rapid pace of social evolution today and its potential is virtually unlimited. NET needs to take fully into account the integration of economic activities with activities related to law, governance, technological and scientific development, education, social relations, and cultural values.

In sum, wealth creation is a function of the whole society and depends on every other major and minor aspect of society, including political stability, freedom, rule of law, justice, transparency, social attitudes and behaviors, cultural values and attitudes, organizational and institutional capabilities, scientific and technological advances, education and training, protection and restoration of the natural environment.

Pixar was founded by George Lucas in 1979 to manufacture specialized computers and software for producing animated special effects and animated films for the motion picture industry. In 1986 Lucas sold Pixar to Steve Jobs for $10 million. At a time when the company was bleeding money and drastically cutting production and employment, the head of Pixar’s film division asked Jobs for $300,000 to make a three minute animated video about talking toys to be used to demonstrate the efficacy of the company’s products. Although the investment seemed risky and frivolous in view of the company’s failing fortunes, Jobs took the plunge. Pixar soon stopped making computers and joined forces with Disney to produce Toy Story, the first in a series of blockbuster computer-generated movies. In 2006 Jobs sold Pixar to Disney for $7.4 billion.9,10

9. Social Power

Wealth creation is not the sole or necessarily the most important determinant of economic value as defined in this paper in terms of human economic security, welfare and well-being. The human impact of the capacity of the society to produce goods and services is very largely dependent on and governed by the overall exercise of power in society.

Power is the capacity to do work of any kind. Social power is the capacity to accomplish objectives within a social context. It is the capacity of human collectives for accomplishment in any field. Our capacity to access and disseminate information instantaneously, communicate around the world, visit other countries safely and with minimum ease, circle the globe in less than 80 hours instead of 80 days, make purchases and enjoy the latest entertainment from the comfort of our home, obtain world-class medical treatment and latest technologies, participate in selection of our political leaders and vote on new legislation are a few expressions of the incredible power society imparts to citizens today.

Social power represents the sum of the political, legal, economic, financial technolog­ical, organizational, educational, scientific, cultural and other powers of the society that enable it to achieve the objectives it sets for itself, as reflected in its capacity for self-defense, transport, communication, production, exchange, education, health, discovery, invention, entertainment, etc. All these forms of social power are transferable and inter-convertible.

This conception vastly expands the theoretical and practical instruments for wealth crea-tion by viewing them within an integrated framework. It explains why improved physical infrastructure of roads, faster communication, improved public health, higher levels of relevant education, a sense of security from external threats, higher levels of confidence in public institutions and leaders, greater individual freedom and opportunity contribute to the overall power of a society to promote human security, welfare and well-being. It also explains why every society today is performing far below its full productive potential.

A vital distinction needs to be made between potential and actual social power and between productive and destructive applications of that power. The productive power of an economy can be properly evaluated in terms of its capacity to generate human economic security, welfare and well-being for its citizens, present and future, in a manner that also promotes the security, welfare and well-being of other human beings outside its sphere of direct influence. The inability of an economy to fully develop and harness the actual and potential productive capacities of its people, social organization, knowledge and technology in such a manner is an expression of incapacity, wrongly or destructively directed power. High levels of unemployment and underemployment, low levels of education and vocational skills, concentration of wealth and purchasing power and political influence among a small minority whose capacity to meet its own economic needs is supersaturated are expressions of this inability. The full economic and social potential of a society can only be realized when all forms of social power are widely distributed and made readily available to all human beings, locally, nationally and globally.

The gap between potential and actual economic and social power depends on the way in which power is governed and distributed in society. All factors that limit the development, restrict the distribution or concentrate the accumulation and use of power to a section of society limit the overall power of the society to a fraction of its real potential. An authoritarian elitist state controls power for the benefit of a small ruling class. Corruption and plutocratic democracy restrict the real exercise of power to a wealthy minority. An economy dominated by large corporations restricts power to a few commercial institutions with strong political backing. A system of taxation that fosters rising levels of income and wealth inequality increases the effective power of the richest with the minimum need and incentive (psychological power) for wealth creation and limits the incentive of the majority with the greatest need and unfulfilled aspirations. A society with low levels or poor quality of education limits power to an educated class. Suppression of women and minorities, casteism, racial and religious prejudice and other forms of social-cultural discrimination confine power to dominant groups.

NET should incorporate within its purview all those factors which contribute to the development and utilization of positive, productive forms of social power to promote human security, welfare and well-being. Physical security, peace and protection, freedom of expression and action, rule of law, guarantee of fundamental rights (including the right to food, minimum needs and gainful employment), access to education and information, broad-based decentralization and uncentralization of authority as on the Internet, ease and speed of movement of all descriptions, flexible and responsive organizations, increasing the intensity of human relations and institutional linkages, respect for the right to differ and dissent, tolerance for non-conformity, encouragement for innovation and creativity are factors with unlimited potential for enhancing individual and social productivity, economic security, welfare and well-being.

10. Money

Money is a social organization and networking tool. It ranks alongside language, agriculture, cities and the internet as one of the most creative and important of all human inventions and a powerful instrument for the evolution of society. But like all human inventions, it has the capacity to serve and promote human welfare or dominate and destroy our freedom and undermine our security. Today the instrument dominates its creator resulting in gross distortions and perversions of our social existence. A fuller consideration of the remarkable characteristics of this social invention and its relevance to NET is considered elsewhere.11,12,13 Only a few observations will be made here.

Regrettably, social science has considered money only in the narrowest sense of an economic tool and left its study almost exclusively to the purview of conventional economic theory. The raging struggle in Europe today over monetary policy places inordinate emphasis on central government debt and inflation and overlooks the essential role played by money in the effective mobilization and utilization of other social resources, inflicting untold costs in terms of lost productivity and creativity, diminished human security and welfare. The understandable aversion to extreme levels of debt has nearly obscured the remarkable ingenuity and sound underlying principle of debt as an instrument for development. Indeed, the collapse of the Roman Empire has been attributed to the fact that the principle of public debt was unknown at the time.

The notion of debt limits is based on a convention amounting to superstition, rather than sound theory. Relating appropriate levels of debt to GDP is an unsound comparison of a stock with a flow. A more appropriate basis for measuring debt would be the total productive value and potential of assets in the country. Policies that restrict the development and utilization of those productive assets are inherently counter-productive. The euro controversy highlights the inextricable linkage between monetary power and political power and provides compelling evidence of the need for a more integrated perspective and social structure in which money creation, fiscal policy and public welfare are the common responsibility of the same government.

Financial markets which were conceived to support development of the real economy now destabilize that economy and divert resources from real wealth creation to accumulation of negative social power. Beyond its utilitarian economic function, money plays a central role as an instrument of social and political power which involves fundamental issues regard­ing democracy and social equality.

The stark contrast between contemporary theory and NET can be illustrated by their dealing with the phenomena of inflation. The prevailing orthodoxy that inflation is a negative phenomenon has almost acquired the sanctity of universal law. Extreme instances of hyper-inflation, the abhorrence of wealthy lenders and the popular resentment of the middle class electorate are cited as self-evident confirmations. The root cause of inflation as an expression of the irrepressible human aspiration for upward social mobility and its historical importance in transforming violent revolution into peaceful social evolution are ignored. Rational social science must rise above the dogmas and prejudices of prevailing beliefs and objectively examine inflation, public debt and similar phenomena at the level of first principles, rather than superficial appearances or anecdotal evidence.

9. Walter Isaacson, Steve Jobs (New York: Little, Brown and Company, 2011)
10. David A. Price, The Pixar Touch (New York: Knopf Doubleday Publishing Group, 2008)
11. Orio Giarini et al., “Introductory Paper for a Programme on the Wealth of Nations Revisited,” Cadmus 1, no. 1 (2010): 9-27
12. Garry Jacobs and Ivo Slaus, “The Power of Money,” Cadmus 1, no. 5 (2012): 68-73
13. Garry Jacobs, “Multiplying Money,” Cadmus 1, no. 6 (2013):123-141

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