{"id":85666,"date":"2025-09-09T07:17:33","date_gmt":"2025-09-09T06:17:33","guid":{"rendered":"https:\/\/www.taxresearch.org.uk\/Blog\/?p=85666"},"modified":"2025-09-09T07:17:33","modified_gmt":"2025-09-09T06:17:33","slug":"quantum-economics-part-3-entanglement-and-double-entry-bookkeeping","status":"publish","type":"post","link":"https:\/\/www.taxresearch.org.uk\/Blog\/2025\/09\/09\/quantum-economics-part-3-entanglement-and-double-entry-bookkeeping\/","title":{"rendered":"Quantum economics, part 3: Entanglement and Double-Entry Bookkeeping"},"content":{"rendered":"<p><em>This post continues the story of quantum economics, <a href=\"https:\/\/www.taxresearch.org.uk\/Blog\/2025\/09\/07\/discussing-quantum-economics-accounting-money-and-more\/\" target=\"_blank\" rel=\"noopener\">which began here<\/a>. There is a summary of posts to date at the end of this post.<\/em><\/p>\n<p><em>Can you please note when reading this post and others in the series that I am not suggesting that quantum physics and economics are akin to each other. Instead, I am exploring how quantum thinking might help build new economic narratives, which is quite a different goal.<\/em><\/p>\n<hr \/>\n<h2><b>Entanglement and Double-Entry Bookkeeping<\/b><\/h2>\n<blockquote><p>\u201cWhen we measure one particle, the other instantly takes on a correlated state, no matter how far apart they are.\u201d \u2013 Albert Einstein (on entanglement, which he called \u201cspooky action at a distance\u201d)<\/p><\/blockquote>\n<p class=\"p4\">Quantum entanglement is one of the strangest and most important discoveries of modern physics. Two particles, once linked, cannot be described independently of each other. Measure the spin of one, and you know the spin of the other, even if they are separated by light-years. Their states are not separate but relational.<\/p>\n<p class=\"p4\">This is not a world of isolated objects but of deep connections. And if that sounds alien, it should not. Accountants have known about entanglement for centuries. They call it <span class=\"s2\">double-entry bookkeeping<\/span>.<\/p>\n<hr \/>\n<h2><b>First: the principle of entanglement in accounting<\/b><\/h2>\n<p class=\"p4\">Every transaction has two sides. Every debit has a credit. Every asset has a liability.<\/p>\n<p class=\"p4\">This is not an optional convention. It is a structural truth. The debit cannot exist without the credit. They are entangled.<\/p>\n<p class=\"p4\">Take the simplest case:<\/p>\n<ul>\n<li>\n<p class=\"p1\">You pay \u00a3100 into your bank.<\/p>\n<\/li>\n<li>\n<p class=\"p1\">On your balance sheet: <span class=\"s1\">Debit: Cash at bank \u00a3100<\/span>.<\/p>\n<\/li>\n<li>\n<p class=\"p1\"><span class=\"s1\">On the bank\u2019s balance sheet: <\/span>Credit: Customer deposits \u00a3100<span class=\"s1\">.<\/span><\/p>\n<\/li>\n<\/ul>\n<p class=\"p4\">Your asset is the bank\u2019s liability. The two entries are linked. To describe one without the other is meaningless.<\/p>\n<p class=\"p4\">This is accounting\u2019s entanglement.<\/p>\n<hr \/>\n<h2><span style=\"color: #000000;\"><b>Second: the suspense account as superposition<\/b><\/span><\/h2>\n<p class=\"p4\">Sometimes we know one side of the transaction but not the other. We enter the debit, but we are not sure of the credit. Accountants call the placeholder a <span class=\"s2\">suspense account<\/span>.<\/p>\n<p class=\"p4\">In quantum terms, this is <span class=\"s2\"><b>superposition<\/b><\/span>. The credit exists, but in a cloud of possibilities. It might be capital introduced. It might be a loan. It might be revenue. Until we identify it, the entry is in multiple potential states.<\/p>\n<p class=\"p4\">The moment we observe \u2014 by tracing the source \u2014 the wavefunction collapses. The credit is pinned down. The system resolves.<\/p>\n<p class=\"p4\">But at no point is the entanglement broken. We always knew that some credit must exist. The uncertainty was about which one, not about whether.<\/p>\n<hr \/>\n<h2><b>Third: why this matters<\/b><\/h2>\n<p class=\"p4\">The entanglement metaphor is not just clever wordplay. It reveals something profound about money:<\/p>\n<ul>\n<li>\n<p class=\"p1\"><span class=\"s1\">Money is never a thing in isolation.<\/span> It always exists as part of a relationship.<\/p>\n<\/li>\n<li>\n<p class=\"p1\"><span class=\"s1\">Every asset has a counterparty.<\/span> My deposit is your debt. Your bond is my investment.<\/p>\n<\/li>\n<li>\n<p class=\"p1\"><span class=\"s1\">There is no such thing as money without context.<\/span> To imagine money as a commodity in itself is to forget its entanglement.<\/p>\n<\/li>\n<\/ul>\n<p class=\"p4\">This is why the household analogy for government finances is false. When governments spend, they create deposits in the banking system. These are entangled liabilities of the state. The so-called \u201cnational debt\u201d is nothing more than the other side of the public\u2019s financial assets.<\/p>\n<p class=\"p4\">Economics that treats debt as a burden misses this entanglement. The liability of the state is the asset of its citizens. You cannot have one without the other.<\/p>\n<hr \/>\n<h2><b>Fourth: entanglement and trust<\/b><\/h2>\n<p class=\"p4\">Entanglement in physics is a matter of natural law. In accounting it is a matter of trust.<\/p>\n<p class=\"p4\">We trust that when we hold money, someone else is obliged to honour it. My \u00a310 note is the Bank of England\u2019s liability. My bank deposit is my bank\u2019s liability. These obligations are guaranteed by the structure of double-entry.<\/p>\n<p class=\"p4\">When trust breaks down \u2014 when liabilities are not honoured \u2014 the entanglement is revealed in crisis. A bank run is the sudden realisation that the entangled liabilities may not be redeemable. A sovereign default is the breaking of entanglement at state level.<\/p>\n<p class=\"p4\">The very stability of the financial system rests on respecting entanglement.<\/p>\n<hr \/>\n<h2><b>Fifth: auditing as measurement<\/b><\/h2>\n<p class=\"p4\">In physics, measurement collapses superpositions. In accounting, <span class=\"s2\">audit<\/span> plays the same role.<\/p>\n<p class=\"p4\">The auditor examines the entangled pairs. If the debit says \u00a3100, does the credit say \u00a3100? If the asset says \u00a31 million, is the liability recorded somewhere else? The act of auditing tests the entanglement.<\/p>\n<p class=\"p4\">When the entanglement is broken \u2014 when debits and credits do not balance \u2014 we know something is wrong. Fraud, error, or misstatement has occurred.<\/p>\n<p class=\"p4\">Auditing is the accounting equivalent of quantum measurement. It makes the hidden correlations explicit.<\/p>\n<hr \/>\n<h2><b>Sixth: macroeconomic entanglement<\/b><\/h2>\n<p class=\"p4\">The entanglement metaphor extends beyond firms and banks. It applies to the whole economy.<\/p>\n<ul>\n<li>\n<p class=\"p1\">The government\u2019s deficit is the private sector\u2019s surplus.<\/p>\n<\/li>\n<li>\n<p class=\"p1\">The UK\u2019s trade deficit is the rest of the world\u2019s trade surplus.<\/p>\n<\/li>\n<li>\n<p class=\"p1\">One person\u2019s saving is another person\u2019s debt.<\/p>\n<\/li>\n<\/ul>\n<p class=\"p4\">These are not optional relationships. They are accounting identities. They are entanglements on a macro scale.<\/p>\n<p class=\"p4\">When politicians talk of \u201creducing the deficit,\u201d they forget that this means \u201creducing the private sector\u2019s surplus.\u201d When they boast of trade surpluses, they forget that this means others must run deficits.<\/p>\n<p class=\"p4\">Macroeconomic policy that ignores entanglement is incoherent.<\/p>\n<hr \/>\n<h2><b>Seventh: speculation and broken entanglement<\/b><\/h2>\n<p class=\"p4\">Speculative markets sometimes appear to escape entanglement. Prices spiral upwards without a visible link to underlying obligations. Derivatives pile upon derivatives.<\/p>\n<p class=\"p4\">But the entanglement remains. Every derivative contract has a counterparty. Every leveraged bet is entangled with another balance sheet.<\/p>\n<p class=\"p4\">When speculation collapses, it is the entanglement that brings contagion. Losses cascade because balance sheets are linked. The illusion of independence vanishes. The 2008 crisis was entanglement revealed in destructive form.<\/p>\n<hr \/>\n<h2><b>Eighth: policy implications<\/b><\/h2>\n<p class=\"p4\">Recognising entanglement leads to different policies.<\/p>\n<ol start=\"1\">\n<li>\n<p class=\"p1\"><span class=\"s1\"><b>Government finance.<\/b><\/span> Stop pretending the state is a household. Its liabilities are the public\u2019s assets. Its spending creates deposits. Entanglement makes deficits normal.<\/p>\n<\/li>\n<li>\n<p class=\"p1\"><span class=\"s1\"><b>Banking.<\/b><\/span> Regulation must recognise systemic entanglement. Banks are not independent firms but nodes in a web. Capital requirements and resolution plans must respect this.<\/p>\n<\/li>\n<li>\n<p class=\"p1\"><span class=\"s1\"><b>Tax justice.<\/b><\/span> When wealthy individuals hide assets in secrecy jurisdictions, they break entanglement. The counterparty entries are concealed. Transparency is restoring visibility to the entangled whole.<\/p>\n<\/li>\n<li>\n<p class=\"p1\"><span class=\"s1\"><b>Inequality.<\/b><\/span> Entanglement shows that wealth at the top is mirrored by obligations elsewhere. If assets grow too fast, liabilities crush others. Redistribution is not envy but rebalancing entanglement.<\/p>\n<\/li>\n<\/ol>\n<hr \/>\n<h2><b>Ninth: the deeper lesson<\/b><\/h2>\n<p class=\"p4\">Entanglement in physics shows that reality is relational, not absolute. Particles do not exist as self-contained units but as parts of larger states.<\/p>\n<p class=\"p4\">Money is the same. It is not a thing but a relation. An entry is meaningless without its counter-entry. An asset is meaningless without its liability.<\/p>\n<p class=\"p4\">This undermines the myth of money as a commodity. Gold standard thinking imagined money as a thing in itself. Neoclassical economics still toys with this illusion. But the truth is relational: money is a web of entanglement, guaranteed by double-entry bookkeeping.<\/p>\n<hr \/>\n<h3><b>Conclusion<\/b><\/h3>\n<p class=\"p4\">Double-entry bookkeeping is more than a method. It is a philosophy of entanglement. It insists that nothing stands alone, that every entry is linked, that balance is structural.<\/p>\n<p class=\"p4\">Quantum entanglement and accounting entanglement are not the same, but the metaphor illuminates. Both reveal a world that is not atomistic but relational. Both show that attempts to think in isolation are misguided.<\/p>\n<p class=\"p4\">An economics that ignores entanglement is doomed to error. An economics that embraces it can see the truth: that money, debt, and assets are not separate things but entangled relationships.<\/p>\n<p class=\"p4\">And only by respecting those entanglements can we fund the future.<\/p>\n<hr \/>\n<h3><strong>Previous posts in this series<\/strong><\/h3>\n<ol>\n<li><a role=\"link\" href=\"https:\/\/www.taxresearch.org.uk\/Blog\/2025\/09\/07\/discussing-quantum-economics-accounting-money-and-more\/\">Discussing quantum economics, accounting, money and more<\/a><\/li>\n<li><a role=\"link\" href=\"https:\/\/www.taxresearch.org.uk\/Blog\/2025\/09\/07\/quantum-economics-part-1-why-quantum-thinking-matters-for-economics\/\">Quantum economics, part 1: Why Quantum Thinking Matters for Economics<\/a><\/li>\n<li><a role=\"link\" href=\"https:\/\/www.taxresearch.org.uk\/Blog\/2025\/09\/08\/quantum-economics-part-2-money-as-particle-and-flow\/\">Quantum economics, part 2: Money as Particle and Flow<\/a><\/li>\n<\/ol>\n<hr \/>\n<h3><b>Comments\u00a0<\/b><\/h3>\n<p>When commenting, please take note of this blog\u2019s comment policy,\u00a0<a href=\"https:\/\/www.taxresearch.org.uk\/Blog\/about\/comments\/\">which is available here<\/a>. Contravening this policy will result in comments being deleted before or after initial publication at the editor\u2019s sole discretion and without explanation being required or offered.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>This post continues the story of quantum economics, which began here. There is a summary of posts to date at the end of this post.<br \/><a class=\"moretag\" href=\"https:\/\/www.taxresearch.org.uk\/Blog\/2025\/09\/09\/quantum-economics-part-3-entanglement-and-double-entry-bookkeeping\/\"><em> Read the full article&#8230;<\/em><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[67,26,35,106,225],"tags":[],"class_list":["post-85666","post","type-post","status-publish","format-standard","hentry","category-accountancy","category-accounting","category-economics","category-politics","category-quantum-economics"],"_links":{"self":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts\/85666","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/comments?post=85666"}],"version-history":[{"count":9,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts\/85666\/revisions"}],"predecessor-version":[{"id":85732,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts\/85666\/revisions\/85732"}],"wp:attachment":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/media?parent=85666"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/categories?post=85666"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/tags?post=85666"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}