Following the publication in Economic Thought of my paper “A Quantum Theory of Money and Value” I have received a number of interesting comments and questions from readers, and this post is an attempt to clarify some of the points which came up. For a description of the theory, please see the paper, or (for the book version) The Evolution of Money.
What is a money object?
These are objects – either real or virtual – which have a fixed numerical value in currency units. Just as quantum objects have dual real/virtual properties, so do money objects (bitcoins don’t seem like objects, until you lose the hard drive they are located on). Money objects are unique in that they have a fixed numerical price. Other objects or services attain their price by being traded for money objects in markets.
Is money an emergent phenomenon?
Money objects are designed (e.g. by the state) to have a set price. The prices of other things emerge as the by-product of money-based markets, which themselves emerge into being as money objects become commonly used. Therefore prices and markets can be viewed as emergent phenomena, but money itself is better seen as a carefully designed technology. (Of course the way that e.g. cybercurrencies emerge into actual use, as markets develop around them, can also be described as an emergent phenomenon.)
What does money measure?
Nothing. Because prices emerge from the use of money objects, one consequence is that price should not be viewed as an accurate measure of “labor”, “utility”, “economic value”, or any other quantity. Money is better viewed as a fundamental quantity, like electrical charge. Money objects, as used in markets, are a way of attaching numbers to things, but that is not the same as measuring them in some way. Of course market forces tend to align prices with some vague idea of value, but the process is far from exact, and money has its own dynamics (which is one reason CEOs in the US earn over 300 times the median wage of their employees). Note this contradicts the Aristotelian idea, later expressed by Aquinas, that money was “the one thing by which everything should be measured.”
The comparison with quantum theory comes about because money is treated as a fundamental quantity (from the Latin quantum); and money objects are a way of combining the notions of number and value, which are as different from one another as the dual wave/particle properties of matter. For example, number is stable, while value varies with time. Money objects are therefore fundamentally dualistic.
As mentioned in The Evolution of Money, other authors and economists (and many others) have used the term “quantum” in different ways. One example is Charles Eisenstein’s Sacred Economics, where in an appendix called “Quantum Money and the Reserve Question” he notes “the similarity between fractional-reserve money and the superposition of states of a quantum particle,” in the sense that money can seem to exist in more than one place at the same time. The quantum macroeconomics school, also known as the theory of money emissions, which dates to the 1950s, gained its name from the idea that production is an instantaneous event that quantizes time into discrete units. A completely different concept is quantum money, which exploits quantum physics in an encryption technique.
What inspired the approach?
One thing is the history of money. The most concrete example of a money object is a coin, which consists of a number pressed into a piece of metal. These date to the time when Greek philosophers were developing the first theories of mathematics. Pythagoras believed that the universe was based on number, and money can be seen as a way of making that true by impressing numbers onto the real world. However mixing the properties of number and things produces a strange kind of alchemy. See this presentation for the 2015 Marshall McLuhan lecture at transmediale in Berlin for a discussion.
How does this differ from the usual understanding of the role of money?
One consequence of the theory is that it inverts the usual narrative of mainstream economics. Since the time at least of Adam Smith, economists have downplayed the importance of money, seeing it as a kind of neutral chip that emerged as a way of facilitating barter. But instead of money emerging from markets, it is more accurate to say that the use of money (jumpstarted by the state) prompted the emergence of markets. And far from being an inert chip, money is an active, dualistic substance with powerful and contradictory properties. Putting numbers on things changes the way they behave.
What is the mathematical map or connection between price and value?
In general there is no such map. Price is an emergent property, which means it need not be computable at all. Of course it is possible to come up with some rules of thumb, but there are no fundamental laws as in physics.
What are the implications for economic modelling?
Economic analysis usually assumes that price and value (in the sense of e.g. utility) are one and the same, and then go on to base economic models on ideas such as utility maximization. But according to the theory presented here, prices do not perfectly measure value or anything else. Instead, prices are fundamentally indeterministic. This introduces a profound uncertainty into any kind of economic calculation. (See related article The true value of money at Adbusters.)