{"id":85661,"date":"2025-09-07T07:36:46","date_gmt":"2025-09-07T06:36:46","guid":{"rendered":"https:\/\/www.taxresearch.org.uk\/Blog\/?p=85661"},"modified":"2025-09-07T07:36:46","modified_gmt":"2025-09-07T06:36:46","slug":"quantum-economics-part-1-why-quantum-thinking-matters-for-economics","status":"publish","type":"post","link":"https:\/\/www.taxresearch.org.uk\/Blog\/2025\/09\/07\/quantum-economics-part-1-why-quantum-thinking-matters-for-economics\/","title":{"rendered":"Quantum economics, part 1: Why Quantum Thinking Matters for Economics"},"content":{"rendered":"

I have already mentioned<\/a> that some of yesterday was spent by Jacqueline (my wife and a retired GP, for those unfamiliar, and a partner in Tax Research LLP, which publishes this blog) and me developing ideas around quantum economics, money, and even accounting.<\/p>\n

I want to stress that neither of us claims to be experts in this, although we have read enough to ask what we think are sensible questions around the ideas in quantum physics to imagine how they might be applied elsewhere.<\/p>\n

The result of our discussion will be published here in at least ten blogs, with the following probable themes (although not all have been edited as yet):<\/p>\n

    \n
  1. \n

    Why Quantum Thinking Matters for Economics<\/b><\/p>\n<\/li>\n

  2. \n

    Money as Particle and Flow<\/b><\/p>\n<\/li>\n

  3. \n

    Entanglement and Double-Entry Bookkeeping<\/b><\/p>\n<\/li>\n

  4. \n

    Quantum Uncertainty and Economic Forecasts<\/b><\/p>\n<\/li>\n

  5. \n

    Speculation, Potential, and Energy<\/b><\/p>\n<\/li>\n

  6. \n

    Infinite Promises, Finite Energy (MMT and constraint)<\/b><\/p>\n<\/li>\n

  7. \n

    The Photon Question \u2014 Labour as the Quantum of Value<\/b><\/p>\n<\/li>\n

  8. \n

    Land as the Field \u2014 Henry George\u2019s Contribution<\/b><\/p>\n<\/li>\n

  9. \n

    Towards a Quantum Political Economy<\/b><\/p>\n<\/li>\n

  10. \n

    A Call for a New Economics<\/b><\/p>\n<\/li>\n<\/ol>\n

    This is the first of those blogs:<\/p>\n

    \n

    Why Quantum Thinking Matters for Economics<\/b><\/h2>\n

    \u201cAnyone who is not shocked by quantum theory has not understood it.\u201d \u2013 Niels Bohr<\/p><\/blockquote>\n

    Economics has borrowed from physics for centuries. In the eighteenth and nineteenth centuries, Newton\u2019s mechanics provided the dominant metaphor. Bodies moved under predictable forces; systems tended towards equilibrium; the world was a machine that could be measured, predicted, and controlled. Economists, eager to dress their subject in scientific clothes, copied these ideas.<\/p>\n

    Supply and demand became forces. Prices were imagined to balance markets. Equilibrium became the central metaphor: like planets finding their orbits, markets supposedly found theirs.<\/p>\n

    But physics itself abandoned this mechanistic worldview more than a hundred years ago. Quantum theory showed that, at the most fundamental level, reality is not mechanical. It is uncertain, relational, and probabilistic, at best, not least because the act of observation always changes the system observed. And, perhaps most importantly for the discussion that follows, what looks like a particle is also a wave.<\/p>\n

    Economics has, to date, not enjoyed that revolution. It is still almost entirely Newtonian in its thinking. It is, in other words, still committed to equilibrium. In particular, its dominant macroeconomic models \u2013 for example, the dynamic stochastic general equilibrium (DSGE) models beloved of most in that field \u2013 are clockwork devices, relying on assumptions of rational agents, predictable shocks, and eventual stability whilst excluding key variables - like money - to make these decidedly limited models possible.<\/p>\n

    The result is an economics out of step with reality. We live in a world of uncertainty, not certainty; of instability, not stability; of entanglement, not independence. And yet our economics pretends otherwise.<\/p>\n

    First: the Newtonian inheritance<\/b><\/h2>\n

    Newtonian mechanics is seductive. It promises an Enlightenment view of rational order, predictability, and control. Drop an object and you can calculate how fast it will fall. Tilt a balance and you can know when it will settle. These metaphors shaped economics from the start.<\/p>\n

    Adam Smith wrote of the \u201cinvisible hand\u201d (albeit briefly) as if economic life were governed by natural law. Nineteenth-century economists imagined wages, prices, and interest rates settling at natural levels. Twentieth-century neoclassical economists developed mathematical models that assumed markets were frictionless and self-correcting, a perspective that is still held by many neoliberal economists, despite its obvious limitations.<\/p>\n

    That inheritance persists. Central bankers and other orthodox economists still talk of \u201coutput gaps\u201d and \u201cnatural rates.\u201d The Office for Budget Responsibility still models fiscal policy as though the future can be forecast with precision. Economists still teach students that supply and demand curves intersect at equilibrium, and that they are smooth and persistent in direction throughout their ranges, when ample evidence suggests that all of this is wrong and the world does not behave that way.<\/p>\n

    \n

    Second: the quantum revolution<\/b><\/h2>\n

    Quantum theory overturned classical physics. Three lessons matter most for economics.<\/p>\n

      \n
    1. \n

      Duality.<\/b><\/span> As quantum physics showed, light is both a particle and a wave. Electrons behave like both too. Their nature depends on how we observe them.<\/p>\n<\/li>\n

    2. \n

      Uncertainty.<\/b><\/span> What was also discovered was that we cannot know both the position and momentum of particles at once. The world is not determinate, but probabilistic.<\/p>\n<\/li>\n

    3. \n

      Entanglement.<\/b><\/span> What was appreciated was that articles can share a state so that measuring one instantly defines the other. Systems are relational and not independent.<\/p>\n<\/li>\n<\/ol>\n

      These lessons shocked physicists. They defied common sense. But they worked: quantum theory explains the micro-world with astonishing precision.<\/p>\n

      \n

      Third: why economics missed the turn<\/b><\/h2>\n

      Economics had its chance to learn. Keynes, in the 1930s, hinted at uncertainty and expectations. He knew that the future was fundamentally unknowable, that probability was not enough, that psychology mattered. However, after the Second World War, the drive to formalise economics into a \u201chard science\u201d overrode these insights.<\/p>\n

      Neoclassical economics reasserted equilibrium, rationality, and determinacy. Keynes was tamed by the neo-Keynesians into IS-LM curves and neat models. Uncertainty was reduced to risk. Probability distributions replaced genuine ignorance. The world has, since then, paid an enormous price for this, not least in the 2008 global financial crisis.<\/p>\n

      By the 1980s, DSGE models dominated macroeconomic thinking. They assumed rational, forward-looking agents, shocks treated as random noise, and economies tending back to equilibrium. The quantum revolution had passed economics by. We lived instead in a world where economists tried to shape the world in the way they thought it should be, rather than trying to understand the way it was. Dogma and not understanding ruled.<\/p>\n

      \n

      Fourth: the consequences<\/b><\/h2>\n

      The consequences of this failure were seen everywhere.<\/p>\n