Quantum Macroeconomics: An Assessment

There is a general agreement that the mainstream macroeconomics has largely failed to predict or correctly estimate the last economic and financial crisis, see the introduction here on the website of the Institute for New Economic Thinking. This failure has motivated more than ever different heterodox approaches to macroeconomics.

The approach known as the “quantum macroeconomics” is such a case. Admittedly, the manifesto of the quantum macroeconomics suggests that this movement emerged along a time span of 40 years. However, it is the character of the manifesto of this movement that attracted our attention. Without going into great detail, in this post I will discuss some of the main assertions of quantum macroeconomics.

The manifesto starts by saying that: “It is odd but in the beginning of the Third Millennium the majority of economists continues to consider money as marginal and nonessential, if not irrelevant, to economic theory”. I should assume that by “economists” they mean here macroeconomists (on one hand, their site is has the tile “quantum macroeconomics”, on the other hand, money should, at least theoretically, interest mostly macroeconomists). Clearly, the authors are not too much aware about the latest developments in the literature. To start with, it is mainly in the Woodford’s view about New Keynesian macroeconomics that money are not important for monetary policy (and macroeconomics). This claim has largely been refuted by the recent literature, see here or here, to give only two examples.

But let us go further in the manifesto. Going to the key point of the manifesto, we read that “In his quantum monetary analysis, production is conceived as an emission, an instantaneous event through which physical output is given a monetary form, and is issued as a “quantum of time”. You may find, like me, quite strange that the production is viewed this way. Certainly, no serious economists would think that production is “instantaneous”; just think about the Kydland’s idea on “time to build”. The manifesto further states that “Issued by banks as a numerical form expressive of any production output, money can be neither a commodity nor a simple ‘veil’ “. I really think that the authors do not understand the issue of money creation. The banks do not need in any way any reference to “production output” to create money. The reader might want to check the recent debate between Keen and Krugman on the issue of money creation.

The manifesto continues afterwards by stating various limitations of mainstream (macro) economics. I would mention only one of them. Consider they approach to exchange rate. They state that “For decades, economists have been pursuing the pipe dream of using a fixed exchange rate system, largely considered as the best tool in encouraging growth in international transactions”. This is rather a misrepresentation and a gross simplification of the views on exchange rate regimes. To give a simple example, think about the case of the Euro Area. Many economists have started to argue that some of the members (particularly from the PIGS group, Portugal, Ireland/Italy, Greece and Spain) should exit the Euro and let their new currency depreciate, see here an example. The debate on the advantages and disadvantages of various exchange rate regimes is a much wider debate and we cannot but direct the reader to further readings.

The quantum macroeconomic approach can easily be categorized as an econophysics approach. The general perception of the econophysics, especially among the more prominent figures in economics, is however quite bad. The quantum macroeconomics does not really help changing this perception. I might come back to the econophysics issue in a future post.


  1. alvaro cencini says

    Leaving aside the question about whether or not most economists consider money as marginal if not altogether irrelevant, let me focus instead on the refutation of the idea that production is an instantaneous event. According to Peter, no economist could take this claim seriously, a clear sign that he himself has never seriously thought about it. This is unfortunate, for he has lost the opportunity to understand the difference between the physical and the economic conception of production. As a physical process of transformation of matter and energy, production is obviously not instantaneous. But Peter is not a physicist; so why not reason as an economist and ask himself how are physical objects transformed into economic products? From an economic viewpoint, production is precisely the event defining this transformation. Now, the passage from physical objects to economic products is mediated by money, since it is only when physical output is given a numerical or monetary form that it becomes an economic product. The operation through which this happens is the payment of wages, and since payments are instantaneous, it is not hard to understand why economic production is itself instantaneous.
    This brings me to the second critique of Peter, who seems to believe that banks can create money as a positive asset without any reference to produced output. It is unfortunately true that his opinion is widely shared by economists, but this does not make it correct. What is particularly surprising here is that neither Peter nor many of his fellow economists seem to be aware of the fact that if banks could indeed create a positive aset out of nothing (a redundancy since creation occurs ex nihilo by definition) monetary economics would pertain to the realm of metaphysics, and banks would be more powerful than God. Reality is much more prosaic. It shows to anyone prepared to see it that money (which is issued by banks through double-entry bookkeeping) is an asset-liablity, a numerical form or ‘envelope’ with no intrinsic value whatsoever. Unless you want to rely on miracles, you have to admit that money can be endowed with a positive purchasing power only through its association to produced output.
    The last point addressed to by Peter is the exchange rate regime and the debate about the future of the euro-zone. No specific criticism is leveled at quantum macroeconomics in this respect. And this is not surprising since Peter has obviously never had the opportunity to read what quantum economists have published on this topic. Had he done so, he would have seen that there is much more to it than the traditional debate about known exchange rate regimes – that in order to acquire a correct understanding of bank money and of its vehicular nature we need to switch from the present regimes of relative exchange rates to a regime of ‘absolute’ exchange rates. What’s more, he would have discovered the existence of a specific pathology affecting countries’ external debts and the existence of a remedy to the present financial crisis, manifestly fuelled by this pathology.
    Finally, nothing could be further from the truth than the claim that the quantum macroeconomic approach is an ‘econophysics’ approach. The concept of quantum time is nowhere to be found in physics, and the emission of money has nothing to do with that of light. By ‘categorizing’ quantum macroeconomics under econophysic’s theories, Peter clearly give himself away how little he knows of this novel analysis; my impression is that he would simply like to discard it as weird and inconsistent. Right or wrong, my hope is that this reply will provoke a fruitful debate and encourage other economists to join in the effort to find new answers to the problems so tragically affecting our economies.

    • Peter says

      Thanks for your detailed answer. Your comment deserves a careful reply, and this is what I intend to do in the followings 1 or 2 weeks.


      • Asim Haq says

        Hi Peter,

        I had taken great interest in the discussion hence anxiously waiting for your reply.



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