I took time to think yesterday, as I said I would.
The idea I came up with is this:
Money is like light. Sometimes it behaves like a particle, sometimes like a wave. It depends on how you look at it.
That might sound like an odd thing to say, and yet it is, I think, a much more accurate description of what money really is than anything you will find in a conventional economics textbook.
That needs some explanation. Whether thinking about a note in your wallet or a number in your bank account, what you are contemplating is not, as such, really “money.” That note or bank balance exists as potential, but it has not yet taken on the form in which it might be used. Unless you spend it, or use it to pay tax, or to clear a debt, or to save or invest it proactively, nothing has yet happened. Only when you act with it does the potential of the monetary-denominated balance that you own become real. That's why money is so much like a quantum particle: unmeasured, it exists as a possibility. The moment of use collapses that possibility into reality.
And it doesn't stop there. A great deal of money exists only as a promise.
A government bond is a promise to pay.
A tax bill is an obligation to settle.
Debts inherently contain the promise that they will be repaid.
Until those things are acted upon, they are just potential, hanging in the air. When the payment is made, the promise collapses into an outcome. The abstract becomes the concrete. Economists who pretend that money is just a pile of stuff sitting somewhere entirely miss this duality.
This is why I am beginning to think that money might be best understood as having quantum-like properties. It is not fixed, solid and certain. It is dynamic. It flickers between states depending on how we look at it, how we use it, and how we measure it.
To explain this, consider the different states of money. It is simultaneously a debit and a credit; an asset and a liability, or a revenue and a cost. It is a particle (a pound, or even a penny, which cannot then be subdivided further) and a flow (as it becomes when in a great many of its uses). It is a measure, and simultaneously the medium. It exists, and then it does not.
And that has an extraordinary implication: there is nothing natural or inevitable about treating money as scarce.
Governments can always create the money they alone issue.
Scarcity is imposed by politics, not reality.
It comes from fiscal rules, from austerity, and from the neoliberal story that the government must behave like a household. But that story is obviously false when seen from this perspective.
In fact, seen from this perspective, money is not absolute at all, but exists only as potential. That then demands something that most politicians will find very uncomfortable when it comes to economic management, because it will demand that they know what they wish to use money for, rather than to claim that their purpose is to deny money's use. A positive is required, not a negative, and we have a generation of politicians who have never embraced the idea that positive thinking is a part of their role.
Seen in this way, everything looks different. Deficits are not signs of failure but the mechanism through which government spending becomes private income.
Tax is not a way of “funding” spending but of rebalancing what has already been created.
And the point of money is not to balance some mythical budget, but to shape the society we want to live in.
The truth is that mainstream economics treats money as if it were certain, solid, and scarce. It isn't. Like quantum physics, it is strange, dual, and contextual. Once we accept that, we can stop pretending economics is about housekeeping and start using money for what it really is: a tool to change the world.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
There are links to this blog's glossary in the above post that explain technical terms used in it. Follow them for more explanations.
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Buy me a coffee!
It looks like a good way to be thinking about money. There’s this thing in physics about the impossibility of knowing the position and speed/direction of a particle at the same time. Position is like a snap shot in time …. that’s a balance sheet or stock. Speed/direction is the flow.
You get it
That’s interesting, Prof. Murphy.
Quantum-like would mean its value was unknowable until probed, at which moment its value is crystalised in one place and reversed in the other place, as ‘spooky action at a distance’. Or, is it a matter of the observer. Whether you see debt, asset, liquidity or fixed assets, depends on where you stand. The reality changes according to the viewer’s behaviour. This is the conundrum of social anthropology too.
So I am learning that debt is the formation of money, but only when in a currency that is reliably demoninatad and backed up. Without that measuring system for debt, it is merely an obglication, of varying degrees and kinds.
Perhaps the most primary of debts is a child’s indebted to its mother? There are other many things we recieve where we don’t get an associated debt. We don’t get an invoice for breathing.
A traditional pre-industrial society has many social debts, but no debts for accessing resources because those societies work in balance and the resources are not in limited supply, everything in that situation is like the air. Which is to say there is no need to store up resources for later, no need to distrubute them and hense no debt and no money.
So why do we have debt and the answer it seems is because we are metering out access to resources that were assembled by technology.
If we are moving to a condition of post-scarcity, then the need for debt would decline, so the prevalence of money would also. If we have everything we need, then what activities would the government want to sustain by managing the money supply? I imagine it would continue to play a role, but the role might be focussed differently?
Regards,
John Tolhurst
Having enough does not mean we do less, necessarily.
I am not sure I follow your logic.
Sorry.
brilliant post John
Considert
a) there is a post-scarcity world of advanced manufacturing and very very low marginal cost that is beginning to appear possible;
b) all energy inputs to the system will be from renewable energy, used to recoming existing minerals; and
c) AI will be capable of distributing & delivering what I might call Livingry (if I copy R.B. Fuller) at no cost.
So to live, one will not need to go into debt and use money, unless one wanted to do something that required additional resources, like if you decided to build your house, say.
Comparing to societies that never accumulated goods and so never distributed them for debt, we find a strong corrolary. In those early societies, meaning in life came from social interactions and the arts of mark-making, dancing, story telling and song. Those carry on today in all modern cultures, supported by new mediums.
I am interested in the societal parameters that induce money, or to use your more specific concept, debt, because I am interested in what society might be like under that post-scarcity hypothesis. Its seems that much of what money does today to distrubute food and basic goods might be done by AI at less administrative cost, leaving money as a tool to enable resources to come together and allow new endeavours to proceed.
This is not about to happen just yet, but technology disruption is geometric, not linear in its progress.
” Deficits are not signs of failure but the mechanism through which government spending becomes private income.”
“Tax is not a way of “funding” spending but of rebalancing what has already been created.”
This being the case then “growing the economy” (LINO mantra) has to mean more money. But if money can ONLY be created by BoE, this must mean @ some point printing more – how else to expand the economy – which in turn, given the mis-match between gov spending and gov collection of taxes – has to mean an expansion of gov debt. But the LINO rabble want to shrink gov debt – which in turn means no growth. Or perhaps I’m missing something?
You’re not missing anything
Given that Rachel Reeves once worked as a Customer Complaints Manager for HBOS I have a complaint for her. Given that treasury bonds in practice remove demand from the economy (rather than the savings being invested in production) why can’t you see that balancing the government’s books by issuing more treasury bonds does the reverse of stimulating the growth you say you are keen to see?
Is it just that you’ve never known the UK government creates money from nothing as a 19th century Act of Parliament tells you and that most households and businesses don’t actually balance their books because they run liabilities in the form of mortgages, bank loans, shares, corporate bonds, derivatives, etc.?
You do realise that not understanding these things means you are subjecting the country to unnecessary sociocidal and ecosidal outcomes!
Schrodinger’s pound!
Excellent insight, Richard!
My own thought is that Schroedinger’s pound is the gold sovereign – either a £1 coin or a piece of gold – which it is is unknown until you take it out of the strong box, to do something with it…
I think that is a very limited example.
The fiat pound is much nore quantum.
“All models are wrong but some are useful” (George Box). This important truth prevents us attaching too much importance to a model and that it only has value if useful. I wish more Economists and other theorists remembered this.
Wave-particle duality for light allows us to use different models in different situations to explain observable phenomena… and why not have different models for money? There is no “right” model for money… but there is an appropriate model for any particular circumstance.
It is often useful to think of money being continually created and destroyed but the “plumbing” model where money flows can be very useful too. Horses for courses – as long as it describes reality!!
My point is – we can simultaneously use different models – and they can both / all be right
Agreed about different models – the model should fit its purpose, as should the tax requirements as well, also, the interest rates.
It emerges from the void as particle/anti-particle (asset/liability) pairs which annihilate upon contact (repayment).
Correct
I can appreciate your fascination with this topic Richard. I have spent many happy hours discussing Quantum with my grandson. In that pursuit I have come across many strange ‘but that can’t be so’ issues which actually are so. Notably the double slit photon experiment which proved a photon could exist in two places at one time. How does this happen? How can we explain it? Currently we can’t.
Kurt Gödel, a mathematician, produced statement and proved it by way of mathematical proof. His proposition went along the lines of “If a mathematical system is consistent it is incomplete”. A ‘real world’ analogy might be “This statement is a lie”. A paradox. If the statement is true it is false, if the statement is false it is true.
Possibly it is an outbreak of Gödel’s paradox at the Treasury that gives rise to some of the rhetoric about economics. But that might be covered by another early pioneer of Quantum study, Alfred Tarski. In 1936 he concluded that any language capable of making self-referential statements couldn’t assess the truth of its own sentences. The formula reads P is true if and only if P. That might explain some of what we’re being told.
I’ll muse on that…
Nobody is more aware of the Schroedinger’s cat nature of money than a small business facing a customer who is a possible bad debt!
It is not the first time I have came across the idea that the value of money has quantum-like properties. I have seen it come up in relation to Bitcoin. I have also heard about it with gold. That these things may or may not be money depending on particular circumstances that are unknown to us until the brown stuff hits the fan and we find out. No is the case, unless we have institutional laws that fix the value/price of gold to money or the government says that they are legal tender. If the question can be asked about financial assets like bitcoin, it is true of all financial assets, including money and other money-like objects.
That’s an interesting way to look at it. But I fear it won’t help a great majority of people.
Richard Feynman supposedly once said: “If you think you understand quantum mechanics, you don’t understand quantum mechanics.”
Maybe no one understands money
It depends on our perspective.
And just knowing that might be incredibly valuable.
Sorry for the pedantry, but I thought this was attributed to Neils Bohr .
Hi Richard,
Yes. I think money is best considered as a quantum phenomenon. Specifically, I’d say money describes the movement – or shift – between determinacy and indeterminacy.
I’m kind of stuck in the ontology, metaphysics and theology of money rarely venturing into the sorts of institutional structures you consider in your analysis. But I’ve come to the same conclusion.
There are a couple of resources you might like – Money, Income & Time (1988) by Cencini which (I think) is the first quantum-theoretical approach to money. And this fabulous podcast by Scott Ferguson Money in Quantum-Land with a proper quantum physicist exploring an MMT approach to the idea. https://moneyontheleft.org/2023/08/11/adventures-in-quantumland-w-ruth-e-kastner/
My own approach may be too out there for you but I wrote a short essay about it here:
https://churchofburn.substack.com/p/money-and-reality
The quantum model also really exposes the limits of the idea that money ‘flows’. Something that’s really bugged me because it so obviously untrue. The late great Nigel Dodd considered this way back in the early 90s in his first book The Sociology of Money. We’re hooked into analogies and metaphors based around money as water or blood. He says – and I’ll be delicate here – a much more accurate analogy would be to consider money as an ’emission’. Certainly for those of us who prefer the Libidinal approach to economy this makes complete sense.
Thanks for the piece. Fantastic happenstance to stumble across it today!
I watched your video (I am tired).
I both liked and disliked it.
You challenged assumptions and demanded free thinking. Some of the ideas (money as a consequential creation, not an invention) are interesting, but not unrelated to the anthropology of language. That does not deny that to survive money has had to take particular form to survive though, as debt, as ledger entries, and so on. What I did not get was duality of view, simultaneously, potential akin to energy awaiting collapse into a form, and also the duality of being both particle and row, without ever being in conflict as a result. I felt you needed to imagine a bit more, but that is said in good humour: I enjoyed listening to you.
I am currently had at work imagining! And writing something a little more precise and contextual. Thanks for your reply.
There’s something akin to the governments ability to create money in the sun’s ability to create photos of light
I know the sun has an end date but it costs little/nothing to make and creates valuable energy/resource raining down on us which is like the valuable financial resource the govt/central bank create at pretty much zero cost to itself pulsing into an economy
A healthy economy is not starved of this financial energy. A neoclassically minded government cuts off this beneficial supply and starved us of financial energy
Agreed, and both accept that we are not a closeed system. Entropy can be managed in other words.
Photon creation is quite a good metaphor for money creation. Of course, if one tried to explain it that way outside this well-informed forum then the response from 90% of people would be “er, what”.
Richard Feynman told a story to try and make photon creation relatable
“Well, now, is the photon in the atom ahead of time that it comes out, or is there no photon in it to start with?” I said, “There’s no photon in, it’s just that when the electron makes a transition it comes”… I could try to explain to him something like: the sound that I’m making now wasn’t in me. It’s not like my little boy who, when he started to talk, suddenly said that he could no longer say a certain word -the word was “cat”- because his word bag has run out of the word cat. So there’s no word bag that you have inside so that you use up the words as they come out, you just make them as they go along, and in the same sense there was no photon bag in an atom and when the photons come out they don’t come from somewhere”.
Full version : https://www.facebook.com/share/v/1Askght7rC/
I like it.
We cannot run out of money any more than we can run out of words.
Its a good concept, I get it.
Is it too much of an abstact concept for some?
Money never sleeps.
But what is the REAL meaning of money?
Is there a real meaning of money?
Or are there multiple meanings of money?
That is my question.
Understood. Thanks.
Reminds me of a book by psychologist Dorothy Rowe, the real meaning of Money ( I think it was called) I will see if I can find my copy (picked it up in the 90s)
I was speaking to a very anguished relative at the weekend who is angry about what’s happening in the UK, but like so many feels powerless. He can’t pay his bills and is looking for 2 extra jobs – he even thinks that won’t be enough.
I have that, somewhere….
Rachel’s bound to find a black hole even in a quantum!
🙂
Deeply interesting. It is a great shame that the mainstream, media and politics, is dominated by what seems to be old, dead, false and harmful thinking on economics.
These worn out economic and monetary theories have resulted in the thread bare democracies we are forced to live in. In a sense Richard and many of the commenters on his blog are pushing for a badly needed Renaissance or Enlightenment era.
The way I think about money is influenced by the work of evolutionary biologist Stuart Kauffman who spent his life researching the processes driving the evolution of life. The ability of organisms to harness energy in the fight against entropy seems key. They do this by developing systems of “constraints” which manage the flows of energy. Another key feature is “redundancy” found in genomes which give organisms the ability to survive shocks arising from random.mutations. The capacity to combine stability with adaptability is central to evolution. We should probably think of economies this way. Money can be understood as an energy flow….it arises from exchanges of human energy which give rise to credit and debt. “Constraints” take the form of institutional structure, regulation, law etc. and these themselves must be adaptable for an economy (and society) to survive entropy and hold the 2nd law of thermodynamics at bay
Much to agree with in that.
And he is right, money is ultimately nit the particle of quantum mechanics because it does not possess energy – evidenced by the fact it can be destroyed. Our creativity is the energy flow.
Money isn’t energy but it is analogous to it. How energy glows is shaped by the “surface” it flows over…Einstein’s idea of the ” bending of space” which shapes where energy flows. You can see how energy and surface interact by observing how a water flow is shaped by the surface it runs over and also how the water flow reshaped the surface. How money flows in an economy is shaped by a “surface” consisting of institutions, regulations and law. To escape neoliberalism we will have to reshape the neoliberal “surface”.
Neat.
I like that.
In your description of the neoliberal ‘surface’ we can see that rentiers have carved out the deepest grooves to channel the flows to themselves enabled by sweet relationships with governments over time as well as deep channels carved by neoclassical governments themselves (regressive tax policy, student loans etc)
As young people these days try to shape their own ‘grooves’ they realise that any of the flow that has reached them quickly gets channelled away in rent, travel costs, student debt etc
Originally, money was the value of the output of a society in tokens to overcome the disadvantages of barter. Essentially, it still is the value of all of the economic resources used in the past. It is debt that can be transferred physically or electronically and that’s all it is. The gov or sovereign or their nominees(usually banks) are the sole creators of the tokens or debt that has to represent the output of the society governed or ruled.
If we could get the average citizen to understand that and accept that it’s true, it would be a big step on the way to developing more advanced theories on money.
There is no evidence that money developed as an alternative to barter.
I’m sorry but David Graeber and others have debunked this idea.
Thanks, I’ll have a look at Graeber’s work.
“Scarcity is imposed by politics, not reality”
Harold Robbins said that economics is the allocation of scarce resources, but resources are not scarce, or for that matter, abundant. They are what they are.
Money mobilises resources and by making money scarce, our politics makes the allocation of resources unequal so that people with more money get more resources.
As you say, this is a political construct, not reality
Agreed
Might the entity of money depend upon purpose, use, consequence and perceptions?
Use
Its a human construct, and humans have lost its understanding, measurement, monitoring and control – of course no living economist would want to admit it. It so happens that we are also the one species that has done irreversible damage to our ecosystem – could this have something to do with money? Ummm. Its invisible yet powerful. It enslaves some and empowers others. It slaughters animals on an industrial scale – 400 billion every year. Pollution is financed by money…. this conversation needs a much wider and continuing debate. Well done for stimulating it.
Picking up the flow and surface relationship and thinking about the introduction of a Scottish currency. Ending the use of the GB£ is like draining the water, leaving behind a dry pre- formed surface. Introducing the new currency is like pouring water on to the old surface so it follows the same pathways as before. So if Scotland has ambitions to become a “wellbeing economy” we will have to reconfigure that old surface. Introducing our own new currency is not enough to change our economy and our society.
Agreed.
As a Physicist I find this an interesting analogy.
It is perhaps not widely known that even in Quantum Mechanics the energy of a closed system is ALWAYS conserved. Yet in Quantum Mechanics one can only compute the probability of the outcome of a measurement on such a system.
Interestingly, this too is like money. Money may be created by the government and taxed out of the system. The net difference over time is the government debt. Yet the total amount of money in the system over time is also our savings. There is a conservation law of money.
(Govt spending flows) – (Govt tax flows) = (time rate of change of our savings)
The government’s debt is our savings: their red ink is our black ink.
Yet what we do with our savings is simply how we exploit the promise-to-pay: debts, bonds, taxes (not yet paid), … But none of this changes the conservation law.
For those interested in energy conservation in Q.M.: the proof is here:
Fact Check: Did Physicists Really “Quash” the Multiverse Idea? https://www.youtube.com/watch?v=HEWMwnCZHJY
This is a 7min 44sec video and the proof starts at the 3:21min mark.
Thanks