In a book published last week, a White House policy adviser says the Social Security system should be dismantled and replaced by compulsory private insurance and Individual Retirement Accounts.

Author Peter J. Ferrara argues that channeling the money into the private economy through insurance and IRAs would help stimulate investment and economic growth. By enlarging the economy in that fashion, he says, an individual's income at retirement age would be far larger than the amount one can now expect from Social Security.

Social Security is extremely sensitive; President Reagan's proposals to cut it last year caused one of his most serious political rebuffs.

The White House was quick to state that the views expressed in the book do not represent White House policy and that the book, based on an earlier one written by Ferrara two years ago, was already in preparation when Ferrara joined the White House staff.

Kevin Hopkins, spokesman for the White House Office of Policy Development, said that before Ferrara joined OPD as a senior policy adviser, he worked as a policy assistant at the Department of Housing and Urban Development and played a major role in drafting one of the enterprise zone proposals to help revive impoverished neighborhoods.

Ferrara's views were first expressed in a full-length book, "Social Security: The Inherent Contradiction," published by the Cato Institute. The Heritage Foundation brought out a shorter version Sept. 10 and another presentation is contained in the book published by Cato last week, called "Social Security: Averting the Crisis."

The key to Ferrara's system is the assumption that it would stimulate the economy so much that people would end up with more from their IRAs than they could have gotten from Social Security. Calculations of this type, however, have repeatedly been challenged by economists on grounds that too high a real rate of interest is assumed, that there is no assurance an individual will choose the right stocks to buy, and that the market might fail even to keep up with inflation.

In the book, Ferrara argues that the current pay-as-you-go Social Security system robs the economy of needed investment, a controversial view that was first formulated by Martin Feldstein, now chairman of the Council of Economic Advisers.

Ferrara's basic proposal is that Social Security be phased out and that younger workers be required by the government to set aside a portion of their income perhaps equivalent to what they would otherwise pay in Social Security taxes, and use it to purchase private insurance, stocks, bonds and IRAs, which would be substitutes for Social Security retirement, survivor, disability and Medicare benefits.