Need for New Economic Theory

I just came across a paper published in April 2010 that shares a number of the same assumptions underlying N Theory.  It is the work of three economists: Orio Giarini working in Switzerland; Garry Jacobs an American working in India; and Ivo Slaus working in Slovenia.  Their paper is titled: "Introductory paper for a programme on The Wealth of Nations Revisited."

Like N Theory they begin by recognizing that our economic system is a social system created by humans and therefore, can be modified by humankind.  Similarly, they point out the world has changed in the past couple of hundred years and yet out current economic theory is "constructed on a foundation laid more than 200 years ago."  The authors of the paper point out that "today the world suffers from excess production capacity backed by insufficient purchasing power."  N Theory starts from this same point showing an insufficient supply of money in the hands of people.  A supply inadequate to support the productive capacity available to fulfill all wants and needs.  N Theory states this is the problem with conventional economic theory.  It does not achieve the purpose of economics: wealth creation adequate to provide for basic necessities.  As Giarini, Jacobs and Slaus note "classical and neo-classical economic theory incorrectly focus on the central importance of supply and demand, rather than on the central importance of human welfare."  In the Rule of Money a couple of chapters are dedicated to showing the inadequacy of supply and demand theory.

N theory makes wealth creation central to the goal of a new economic system since implementation of effective change will require financial resources.  In N Theory the Wealth Rule: The purpose of a monetary system is to create wealth, plays a dominant role in deciding among what sector of the economy should be in charge.  The three authors of the paper cited above agree with this approach when they state; "The goal of economic systems is the generation of wealth to promote human welfare." 

Agreement among economists about the idea of wealth creation alone would provide a benchmark for evaluating economic policy.  Much of economic policy activity surrounds fixing holes in the dyke rather than understanding the goal is to keep seawater out of the wetlands.  If the repair is inadequate and results in the collapse of the dyke then a new system needs to be constructed.  We can do that since as the paper points out, "As distinct from physical systems, social systems are man-made and purposeful.  They are capable of conscious adaption and evolution."

N Theory is a new purposeful system that intends to create more worldwide wealth and distribute in a fair and equitable way.  Along the way this process will eliminate the special privileges that the influential and powerful possess.  N Theory is just the first step, but it is a map that can point the way.

It is encouraging to see prominent economists from Europe are along on this journey.