In the early years of the 20th century, physicists started to notice some unsettling things. When you get to the level of subatomic particles, the classical rules of motion and even logic start to
Electrons disappear into the void, instantly reappearing somewhere else. They get entangled with each other (something happening to one can simultaneously affect another). In fact, they aren’t strictly speaking anywhere until you look at them.
The physics community followed the evidence and quantum theory was born. Applied mathematician and Oxford PhD David Orrell thinks it’s high time economics did the same. In his book Quantum Economics: The New Science of Money, he argues that current economic models completely misunderstand the importance of money which, he believes, has quantum properties. Management Today asked him to explain his theory.
What’s wrong with mainstream economics?
Orrell: "It’s telling that mainstream economics just doesn’t deal with money, which it calls "an inert medium of exchange". It leaked out after the financial crisis that the macroeconomic models didn’t include the private banking sector, where money is actually created.
"Indeed, the value of financial derivatives (contracts based on the performance of underlying assets such as stocks) hanging over the economy today is over a quadrillion dollars, which is ridiculous. No one knows how this will behave next time we have a crisis: none of the fancy economic models take them into account.
"The social sciences modelled themselves after Newtonian physics. Money doesn’t fit their model. It doesn’t obey mechanistic rules, it jumps around and entangles people. It’s volatile, emotional and does weird things to the brain, changing how we behave. Money is a psychoactive substance, if you will."
And that’s better described by quantum mechanics? It sounds like human nature...
Orrell: "Money is a human invention, so yes, this is bringing humanity back into the picture. But if you look at quantum properties like duality (which holds that light and matter exhibit properties of both waves and particles) and indeterminacy, you’ll find them all in money. Money jumps from one place to another in discreet transfers, not a continuous flow.
"In quantum physics, something doesn’t have a well-defined position until it’s measured. It’s the same with selling a house. You may think it’s worth £500,000, but that’s just a fuzzy idea of value that only collapses down to a real price when the house is sold. That measurement affects other things, for example if it’s very high, it will lift prices in your area. When these things were noticed in physics, it kick-started a whole revolution."
Is the economy actually a quantum system then, or is it a metaphor?
Orrell: "The theme of my career as a mathematical modeller has been that all models are fundamentally metaphors. The problem is there’s a tendency in science to start thinking the model is real. In this case, there’s just a striking resemblance between the world we live in and the quantum world, and social scientists are entitled to use the same mathematical tools as physicists to describe it."
What is to be gained by having a quantum revolution in economics?
Orrell: "The idea is to make economics a smaller, less powerful discipline. It’s too ambitious, trying to bring everything into a rational choice framework. This means you could put a numerical value on the environment and build an economic model of climate change, but these models are based on damage 100 years into the future.
"You get different answers depending on the numbers you put in. If economists can’t predict the financial crisis, I certainly don’t want them making recommendations about what’s going to happen in 100 years to my grandchildren."
Economists haven’t covered themselves in glory when predicting crashes. But would quantum economists have done better?
Orrell: "We often say that quantum mechanics is the most predictive theory in history, but it can’t actually be used to predict anything beyond a certain scale, because it becomes far too complicated. The behaviour of water can’t be reduced to quantum physics for example. There’s a lesson there. If we can’t predict the properties of water, the fact that money has quantum properties is telling you that prediction is going to be a problem for anyone."
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