Quantum Economics

1. Money is a quantum phenomenon with dual real/virtual properties

Money objects such as coins, notes, or even bitcoins have dualistic properties which rival those of photons or electrons.

Dual nature of money. Like quantum entities, money exhibits both particle-like and wave-like properties. As a particle, it exists as physical objects like coins or notes. As a wave, it represents abstract value and potential. This duality allows money to serve as both a store of value and a medium of exchange.

Historical evolution. The quantum nature of money has manifested throughout history:

• Ancient Mesopotamia: Clay tablets representing abstract value
• Ancient Greece: Coins combining physical metal with symbolic stamps
• Medieval Europe: Tally sticks splitting value between stock and foil
• Modern era: Fiat currencies and digital money emphasizing virtual aspects

Money's ability to bridge the real and virtual realms gives it unique power to shape economic reality. Understanding this quantum essence is key to grasping money's true nature and impact on society.

2. The economy is an entangled quantum system, not a mechanistic one

Instead of behaving like independent Newtonian particles, as assumed in mainstream neoclassical economics, we are actually closely entangled and engaged in a sort of collective quantum dance.

Quantum entanglement in economics. The economy is not composed of independent rational agents, but of interconnected entities whose actions instantaneously affect each other. This entanglement occurs through:

• Financial contracts and debts
• Social norms and shared beliefs
• Market sentiment and herd behavior
• Global supply chains and trade networks

Emergent properties. The quantum nature of economic interactions leads to emergent phenomena that cannot be reduced to individual behaviors:

• Market crashes and bubbles
• Economic cycles and fluctuations
• Collective shifts in consumer preferences
• Self-fulfilling prophecies in financial markets

Understanding the economy as a quantum system reveals why reductionist, mechanistic models often fail to capture real-world dynamics. It highlights the need for holistic approaches that account for interconnectedness and non-linear effects.

3. Mainstream economics ignores the quantum nature of money and markets

By omitting money, and modelling the economy as a stable and self-correcting system, economists helped create an economy that was the exact opposite.

Flaws of mainstream economics:

• Assumes rational, independent agents
• Models markets as self-equilibrating systems
• Ignores the role of money creation and debt
• Treats the financial sector as neutral intermediary
• Relies on unrealistic assumptions of stability and predictability

Consequences of flawed models:

• Failure to predict financial crises
• Underestimation of systemic risks
• Misguided policy recommendations
• Neglect of inequality and environmental issues
• Over-reliance on mathematical formalism at the expense of real-world relevance

By clinging to outdated Newtonian paradigms, mainstream economics has become increasingly disconnected from economic realities. A quantum perspective is needed to address these shortcomings and develop more accurate models of economic behavior and dynamics.

4. Financial transactions are quantum measurements that affect the system

Market prices are not determined by fixed laws, but are the emergent result of a kind of quantum measurement process.

Prices as quantum measurements. When a financial transaction occurs, it collapses the indeterminate state of an asset's value into a specific price, analogous to quantum measurement. This process:

• Is context-dependent and influenced by the act of measurement itself
• Cannot be perfectly predicted due to inherent uncertainty
• Affects future measurements by changing market conditions

Implications for markets:

• Efficient market hypothesis is flawed
• Perfect price discovery is impossible
• Market participants affect prices through their actions
• High-frequency trading and algorithmic systems can create quantum-like effects

Understanding transactions as quantum measurements reveals why markets are inherently unpredictable and prone to sudden shifts. It challenges the notion of objective asset valuation and highlights the role of uncertainty in financial systems.

5. Human decision-making follows quantum rather than classical logic

Classical theory has bounded rationality, quantum is unbounded rationality.

Quantum cognition. Human decision-making exhibits quantum-like properties:

• Superposition: Holding conflicting thoughts simultaneously
• Interference: Mental states affecting each other
• Entanglement: Decisions influenced by social context
• Non-commutativity: Order of information matters

Examples of quantum decision-making:

• Preference reversals based on framing
• Context-dependent choices
• Violations of classical probability theory
• Emotional and intuitive judgments

Quantum cognition explains many "irrational" behaviors that puzzle classical economists. It suggests that human rationality is not bounded, but operates according to a different, more fluid logic. This perspective can lead to more accurate models of consumer behavior, investor psychology, and economic decision-making.

6. The financial system creates money "out of thin air" through loans

When you borrow from a bank, the bank credits your bank account. The deposit – the money – is created by the bank the moment it issues the loan. The bank does not transfer the money from someone else's bank account or from a vault full of money.

Money creation process:

• Banks create new money when issuing loans
• Money supply expands through credit creation
• Central banks do not directly control money supply
• Fractional reserve banking allows multiple expansion of deposits

Implications:

• Money is primarily debt-based
• Economy requires constant growth to service debts
• Financial sector wields enormous power through money creation
• Monetary policy effectiveness is limited

Understanding the true nature of money creation challenges conventional views on banking, inflation, and economic policy. It reveals how the financial system can drive boom-bust cycles and contribute to rising inequality.

7. Economic models fail to predict crises due to flawed assumptions

The models therefore tried to simulate the economy without ever addressing its most basic feature, which is transactions involving money.

Limitations of mainstream economic models:

• Assume rational expectations and efficient markets
• Ignore financial sector and debt dynamics
• Treat economy as stable, self-correcting system
• Rely on unrealistic "representative agent" concept
• Fail to account for non-linear feedback loops

Consequences of model failures:

• Inability to foresee 2008 financial crisis
• Underestimation of systemic risks
• Misguided policy recommendations
• Loss of credibility for economics profession

The persistent use of flawed models has led to a disconnect between economic theory and reality. A quantum economics approach, incorporating uncertainty, interconnectedness, and emergent phenomena, could provide more accurate and useful insights for policymakers and market participants.

8. GDP is a flawed measure that ignores critical factors like sustainability

By measuring any activity that produces numerical wealth, while ignoring or downplaying problems such as resource depletion or pollution, GDP biases the economy towards activities that damage the environment.

Limitations of GDP:

• Excludes non-market activities (e.g., housework, volunteering)
• Ignores environmental degradation and resource depletion
• Fails to account for income distribution
• Counts harmful activities as positive (e.g., pollution cleanup)
• Neglects quality of life and well-being factors

Alternative measures:

• Genuine Progress Indicator (GPI)
• Human Development Index (HDI)
• Gross National Happiness (GNH)
• Inclusive Wealth Index (IWI)

Reliance on GDP as the primary measure of economic success has led to distorted priorities and unsustainable practices. A quantum economics approach would consider a broader range of indicators and account for the interconnected nature of economic, social, and environmental systems.

9. Inequality and environmental damage are intrinsic to our monetary system

Because most of the money supply is created through loans for private banks, the vast majority of the money we use ultimately represents somebody's debt. That debt bears interest, so if the economy were to stop growing, and the money supply tapered off, then it would be impossible to pay off the debt.

Systemic drivers of inequality:

• Debt-based money creation concentrates wealth
• Compound interest leads to exponential growth of debts
• Financial sector profits from money creation and interest
• Asset inflation benefits wealthy property owners

Environmental consequences:

• Constant growth imperative conflicts with ecological limits
• GDP-focused policies ignore environmental costs
• Debt drives resource extraction and consumption
• Short-term profit motives override long-term sustainability

The current monetary system creates inherent pressures for inequality and environmental degradation. Addressing these issues requires fundamental reforms to how money is created and circulated in the economy.

10. A new quantum economics is needed to address modern challenges

Instead of predicting an economy that is efficient, fair, and stable, quantum economics suggests one that is creative but tends towards inequity and instability – rather like the world we live in.

Key features of quantum economics:

• Incorporates uncertainty and non-linear dynamics
• Models economy as complex, interconnected system
• Accounts for role of money creation and debt
• Considers psychological and social factors in decision-making
• Integrates environmental and social sustainability

Potential applications:

• More accurate risk assessment and crisis prediction
• Better understanding of market dynamics and bubbles
• Improved policy design for addressing inequality
• Integration of economic and ecological models
• Development of alternative monetary systems

Quantum economics offers a framework for understanding and addressing the complex challenges of the 21st century economy. By embracing uncertainty, interconnectedness, and emergent phenomena, it can provide more realistic and effective approaches to economic policy and management.

Last updated: October 21, 2024