From Newtonian Economics to Full Employment: Need for new theory

By Garry Jacobs

Jan 9, 2010

In a report to the Club of Rome entitled the The Employment Dilemma: The Future of Work, Orio Gianini and Patrick Liedtke present a strong case for the need for new economic theory on employment in order to fulfill Adam Smith’s dream of the Wealth of Nations. Instead of looking at employment through the eyes of existing theories, “we have to understand why the old theories were created, where and why they fail now and then propose a feasible, more efficient alternative…”[1]

In formulating a new theory of employment, it is both common sense and good ethics to start with the premise that any system which purports to represent sound economics must provide a viable means for all members of society to acquire at least the minimum (why not the optimum?) level of purchasing power needed for survival, development and full enjoyment of their human potential. If economic systems based on current economic theory are unable to provide sufficient employment opportunities, it means either the prevailing theory or its application are deficient. Since the problem of unemployment is widespread, we may safely assume the fault lies in the theory itself.

There are only two possible solutions to the problem of human welfare. Either all members of society must have ample opportunity to acquire the good things of life by their own enterprise. Or in the absence of such opportunities, society must provide adequate support for all its members in the form of social welfare benefits. Anything less than this can only be considered a first rough approximation, a crude clumsy attempt at social development in need of radical reform. Thus, the need for new theory is self-evident when we recognize that neither classical nor contemporary theory provides an adequate solution to the most central issue of economics – human welfare.

Newtonian Economics

The failure of theory is self-evident, but most social thinkers – Marx is an obvious exception – have been constrained from evolving alternative theories by the misconception that economics is governed by immutable, universal laws similar to those governing physics and chemistry and that we must necessarily accept what Nature offers and do the best we can in the given circumstances.

This Newtonian conception of economics is challenged by Orio Gianani and Patrick Liedike in their report describe the classical view of economics:  a “system of models in the deterministic tradition of Newton’s world as autonomous, closed, self-regulating universe, running according to predetermined laws, culminating in a static equilibrium... p.60-61) 

If the economic life of humanity is not determined by immutable laws of Nature, then what is it determined by? It is determined by the past evolution of human civilization. It is a product of the social organizations and institutions we have fashioned in the course of social evolution, which in turn have been determined by our limited understanding (ignorance), egoistic attitudes and inadequate will to arrive at a more adequate solution. It is the result of human choices made in the past, choices than can be altered at any time.

Unmet needs & full employment

Common sense tells us that there is no inherent reason why we cannot devise an economic system in which everyone that is willing to work and capable of productive activity is assured of an opportunity and means to do so. It is not as if all possible human wants are already being met and there is no further work to be done in the world. Far from it. According to an article in the Economist (Feb 2009)over half the world's population now belongs to the middle class, as a result of rapid growth in emerging countries. By middle class, it means those having a reasonable amount of discretionary income, so that they do not live from hand to mouth as the poor do.[2] This estimate still leaves more than 3 billion people in need of the minimum requirements for a comfortable living.

Obviously, there is a great deal of work that is not getting done in the world, work that would raise the other half of humanity to middle class status. Apart from this, humanity has an insatiable appetite for more education at all levels, improved health care, more and better attention to the needs of our children and the aged, better community development, more research, new forms of entertainment, infrastructure improvements, etc. So we have a vastly underutilized resource – human beings – estimated by Randall Wray as 25% of the work force in the USA alone, and we have a plethora of unmet social needs.

In his articles and GEC webcast, Wray offers a solution to this dilemma, one with the capacity to dramatically improve the employment situation of the unemployment in both developing and developing countries in the short term by introduction of government sponsored and financed job programs. He presents both the theoretical rationale and practical means to justify this approach. We can and should adopt programs such as this, as India has already done over the last four years through its massive rural employment guarantee scheme which offers a minimum 100 days of employment annually to more than 50 million families.

Human Rights, Ethics & Social Theory

But long term, there should be and is a better way. It requires formulation of new theory, not just modification of prevailing concepts. As Giarini and Liedtke argue, classical and neo-classical economic theory focus on the central importance of supply and demand, not on the central importance of human welfare. In an effort to imitate the impartiality and objectivity of the physical sciences, social scientists have generally chosen to study existing social systems as they are, rather than formulate theories describing what they should be. There may be no place for ethics in physical nature, but a sense of right, truth and justice is the very essence of what makes us human. Therefore, there is no reason why we should not formulate a theory of economics based on the premise that all members of society have a right to employment, a theory that not only affirms the right but also presents the structures and processes by which this can be achieved. That makes Winston Nagan’s essay on Human Rights and Employment an appropriate starting point for the formulation of new economic theory.


[1] Gianini, Orio and Patrick Liedtke, The Employment Dilemma: The Future of Work, Club of Rome, 1997, p. 15.

[2] ^ Parker, John (2009-02-12), "Special report: Burgeoning bourgeoisie", The Economist, 2009-02-13,, retrieved 2009-12-13