Friday, 15 January 2016

Towards Quantum Economics

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Quantum Economics (a.k.a. quantum macroeconomics, a.k.a. the theory of money emissions) is a school of monetary economic analysis developed by French economist Bernard Schmitt (* 1929 in Colmar, France), beginning in the 1950s in Dijon (France) and Fribourg (Switzerland).


The origins of quantum economics can be traced back to the works of prominent economists of the past. Quantum economists refer to Adam Smith’s distinction between money and money’s worth promoted in his Wealth of Nations and later taken up by David Ricardo and Karl Marx:
When, by any particular sum of money, we mean not only to express the amount of the metal pieces of which it is composed, but to include in its signification some obscure reference to the goods which can be had in exchange for them, the wealth or revenue which it in this case denotes is equal only to one of the two values which are thus intimated somewhat ambiguously by the same word, and to the latter more properly than to the former, to money’s worth more properly than to the money[1]
— Adam Smith
In another passage Adam Smith emphasizes that money is not a product, but a simple means of circulation whose value does not add up to that of national output. Karl Marx dwelled further on this subject and suggested that money is but the social form of value:
In the form of money, all properties of the commodity as exchange value appear as an object distinct from it, as a form of social existence separated from the natural existence of the commidity.[2]
— Karl Marx
Quantum economists refer also to David Ricardo’s idea that commodities cannot measure value because their value fluctuates:
The only qualities necessary to make a measure of value a perfect one are, that it should itself have value, and that that value should be itself invariable, in the same manner as in a perfect measure of length the measure should have length and that length should be neither liable to be increased or diminished; or in a measure of weight that it should have weight and that such weight should be constant.[3]
Léon Walras’s view of money as a purely numerical, adimensional object („Le mot franc est le nom d'une chose qui n'existe pas[4])is another intuition espoused by quantum economists. They also revive Jean-Baptiste Say’s Law, although in a slightly different sense than usually retained. By analyzing the accounting logic of payments and production, quantum economists claim that global supply and global demand are necessarily identical at every instant in time. They also take inspiration from the capital theory of Eugen Böhm von Bawerk – in particular his work on the relation between capital and time – and to Knut Wicksell and his idea that money is endogenously created by banks. Perhaps the most crucial author to quantum economists is John Maynard Keynes. Bernard Schmitt was inspired by his idea that economic theory ought to integrate the nature of money and the role of banks in a “monetary theory of production”.[5] Keynes noted that money is a spontaneous acknowledgement of debt, which is entered into the bank’s ledger in a two-sided operation. Other Keynesian insights adopted by quantum economists are his choice of the wage unit as the economic unit of measure,[6] as well as his idea that the macroeconomic identities between global demand and global supply, and between saving and investment, are logical identities, rather than equilibrium conditions:
The prevalence of the idea that savings and investment, taken in their straightforward sense, can differ from one another, is to be explained, I think, by an optical illusion due to regarding an individual depositor’s relation to his bank as being a one-sided transaction, instead of seeing it as the two sided transaction which it actually is.[7]

Fundamental Concepts[edit]

The following concepts are the cornerstones of quantum economics.


Bank money is indisputably the starting point of Bernard Schmitt’s analysis. Referring to double entry bookkeeping, he shows that the emission of money is an instantaneous event taking place every time a payment is carried out by banks. Since no positive asset can be created out of nothing, quantum economists maintain that, far from being a net asset, money is a purely numerical vehicle issued by banks in a circular flow defining its instantaneous creation and destruction. Money is therefore nothing more than a means of payment, a numerical vehicle through which payments are conveyed from purchaser to seller and whose existence in chronological time coincides with that of the payment it conveys: a mere instant.


Quantum economists introduce a fundamental distinction between money and income. Money has no positive value whatsoever; and income is the very object of economic payments. While money is emitted by banks at zero cost, income is the result of production. According to quantum economic analysis, when banks grant a credit to the economy they do so by lending it the income generated by its own productive activity, not through money creation.

Production and quantum time[edit]

The expression quantum economics or quantum macroeconomics (since the approach proposed by quantum economists is substantially macroeconomic) has its raison d’être in the fact that, as shown by Bernard Schmitt, production is an instantaneous event that quantizes time. According to his analysis, output is literally emitted as a whole at the very moment production takes place, that is, at the instant the production process is completed. The entire period of production (a finite period of time) is thus ‘given in an instant’ as an indivisible interval of time: a quantum of time. As quantum economists explain it, from an economic point of view production coincides with the payment of wages. It is at the very moment wages are paid that output acquires its numerical form and is transformed from a physical object into an economic entity. The payment of wages is therefore the instantaneous event that defines production, through which money acquires a real content and is replaced by a positive amount of income.

Absolute Exchange[edit]

An absolute exchange is an exchange of an object with itself (as opposed to a relative exchange, an exchange between two different objects). We can exemplify this unusual phrasing by considering a wage payment. When firms pay wages, wage earners receive a bank deposit. Assuming, for the sake of simplicity, that the firm pays wages by contracting a new loan with the bank, this new asset in the bank’s balance sheet exactly matches the bank’s liability with wage earners. Wage earners receive a positive purchasing power because their credit with the bank has a real object – the newly produced output. Wage earners' income therefore does not exist independently of output; it is the numerical form of output, its expression in terms of units of accounts. In this sense, in the payment of wages output in its physical form exchanges for output in its numerical form (income), in what quantum economists call an absolute exchange.

The law of the identity between sales and purchases[edit]

Following Bernard Schmitt, quantum economists claim that the correct interpretation of the principle of double-entry bookkeeping implies the necessary equality between each economic agent’s sales and purchases. Perfectly consistent with the flow nature of money, this law applies to the buying and selling transactions carried out on the set of available markets. Hence, for example, within any national economy it is always verified on the labour, commodity, and financial markets taken together. If money were a net asset, the purchase of agent a would simply be matched by the sale of another agent b. Agent a would be debited and agent b credited. Yet, since money is but a flow and consistently with double-entry bookkeeping, a can pay for his/hers purchases only through his/hers simultaneous sales: his/hers purchases on the commodity market, for example, must be balanced by his/hers sales on the labour or/and the financial markets. According to quantum economists this is but the necessary consequence of the true principle of double-entry bookkeeping, each agent being simultaneously debited-credited or credited-debited.

The law of the identity between global demand and global supply[edit]

Since output finds its economic measure in the payment of wages and since income is initially formed by this same payment, quantum economists hold that global supply and demand are jointly determined as the two aspects of one and the same reality. They maintain that global or macroeconomic demand is defined, irrespective of economic agents’ behaviour, by the amount of income available within a given economy, and that global or macroeconomic supply is determined by the economic measure of produced output. Both terms of the equation D = S being measured by the same amount of wages, quantum economists conclude that their relationship is necessarily that of an identity and that the present economic disequilibria have to be explained starting from and consistently with this identity.

Monetary Pathologies[edit]


Inflation is the situation where global demand numerically exceeds global supply. This situation is at odds with the logical quantum identity between demand and supply – inflation is pathological. To have inflation there must be some money devoid of purchasing power, which quantum economists call empty money, that increases or inflates global demand only numerically without altering the substantial identity between D and S. According to quantum economists, the origin of inflation is closely connected with capital accumulation.[8] By marking up prices over costs of production, firms make a profit. In the process wage earners transfer part of their purchasing power over produced output to firms. Firms may then either redistribute their profits or invest them. In the first case, shareholders and creditors spend their dividends and interests on the goods market and income is thereby destroyed. In the second case, firms invest their income (profit) by financing the production of fixed capital goods. Because wages are paid out of a pre-existing income, their payment implies the purchase of fixed capital goods by firms. This is a final purchase of output, which therefore destroys income. However, current systems of payments do not recognize this fact, and allow banks to lend on the financial market the deposits formed following the investment of profits. Logically, the income invested by firms is transformed into fixed capital, and should therefore no longer be available on the financial market. This not being the case, an ‘empty’ sum of money pathologically increases the demand for produced output: there is a nominal demand not matched by an equal supply (inflation). Quantum economists emphasize that inflation and its effect – the pathological accumulation of capital – is a macroeconomic disorder that does not stem from the behavior of economic agents. The root of the problem lies in the current accounting system of banks, which, being inconsistent with the logical distinction between money, income and fixed capital, generates inflation.

Involuntary Unemployment and Deflation[edit]

Quantum economists consider involuntary unemployment as a macroeconomic pathology. Unlike micro-founded theories of unemployment, quantum economists state that involuntary unemployment is a macroeconomic disorder independent of people’s behavior. Inflation causes capital over-accumulation as empty money emissions lead to inflationary profits for firms and to their investment in the production of new fixed capital goods. Yet, firms must also pay the cost of capital – the market’s rate of interest – out of profits. Quantum economists then argue that, as the amount of fixed capital goods grows persistently, at some point the ratio between profits and capital must fall. As the margin or the gap between the rate of profit and the market interest rate falls, firms will then either invest less, or use their profits for the production of consumer goods. In the first case, national production suffers, thus causing a positive measure of involuntary unemployment. In the second, firms supply an amount of consumer goods for which there is no associated demand (deflation).

Sovereign or external debt crisis[edit]

Bernard Schmitt and his followers argue that a correct definition of a country’s sovereign debt cannot be limited to what is known as public debt, but must include both that part of public and private debt a country incurs abroad. At the same time they claim that, because of the lack of a true system of international payments respectful of the flow nature of money, the sovereign or external debt of countries is the object of a pathological duplication. In a few words, they maintain that countries’ external debt is much higher than it should be because of a pathological, monetary mechanism that multiplies by two the debt incurred every time a country finances its net expenditures through a foreign loan. As a consequence of this pathological increase in their sovereign debt, countries are forced to pay huge amounts of interests without obtaining any real counterpart. What is lost by countries is gained by what is known as the financial bubble, a stateless, pathological capital whose presence is at the origin of speculation and whose continuing growth explains the increasing disrupting effects of the financial crisis.

Proposals for Reform[edit]

All monetary pathologies identified by quantum economists can in principle be cured by reforming bookkeeping practices of banks and settlement institutions. The reforms proposed by quantum economists are not aimed at changing the behaviour of individuals, but would merely alter the way transactions are recorded by banks and settlement institutions. Quantum economists propose two reforms, which would get rid of inflation and deflation, involuntary unemployment, sovereign debt crisis and pathological volatility in financial markets.

Reform of National Payment Systems[edit]

In the reformed system of national payments, transactions are recorded in three separate departments.[9]
I. The monetary department (department I) records all money emissions.
II. The financial department (department II) records all newly formed bank deposits and their expenditure.
III. The fixed capital department (department III) records the capitalization of profits.
The basic principle behind this tripartite structure of banks’ bookkeeping is the practical separation of money (department I), income (department II) and fixed capital (department III). The first two departments guarantee the separation between money – a valueless, numerical vehicle – and income – a positive bank deposit and the monetary definition of current output. Because banks can issue money without cost by the stroke of a pen and can thereby extend the assets and liabilities side of the balance sheet theoretically ad infinitum, an over-emission of money can occur. The separation will ensure that banks cannot lend more money than they have income deposited, thereby preventing a credit-led inflation. Banks will not be able to lend more than the amount of income generated by production. Thanks to this partition, bank directors would know at every point in time the exact amount of income they can lend to the public. The third department is there to guarantee that income is not mixed up with fixed capital, which in the present system leads to the emission of empty money, the cause of inflation according to quantum theory.[10] All profits, once formed in the market for goods, have to be transferred to the third department. Profits distributed by firms as interests and dividends are transferred back to the second department; anything remaining in the third department defines the amount of fixed capital formed in the economy. Fixing these profits in the balance sheet of the third department prevents firms from spending these deposits once again, which would give rise to an inflationary process of capital accumulation.

Reform of International Payment Systems[edit]

Granted that within any sovereign country a monetary system exists that ensures monetary homogeneity and the final settlement of inter-bank payments, no satisfactory international system of payments has so far been implemented between countries. Quantum economists advocate Bernard Schmitt’s proposal for a world monetary reform based on the institution of a supranational bank acting as a monetary intermediary and as an international clearing house. They argue that international payments would be best settled using an international money and that through its circular or vehicular use the supranational bank would settle credits and debts of the various national banking systems. Implementing a real-time gross settlement system between central banks, the imports of goods or services of one country would be immediately balanced by an equivalent export of goods, services and/or securities of the same country. This way, quantum economists argue, payments between nations would settle and money would assume its natural function of a circular and vehicular means of payment. The reform proposed by quantum economists is reminiscent of the one originally designed by John Maynard Keynes at Bretton Woods. However, Keynes’s solution was not entirely satisfactory, for it still implied the use of gold and other reserve assets, and it did not fully explain how payments carried out through the vehicular use of an international currency can enable the real settlement of international transactions.


Schmitt, B. (1960): La formation du pouvoir d’achat, Paris: Sirey.
Schmitt, B. (1966): Monnaie, salaires et profits, Paris: Presses Universitaires de France.
Schmitt, B. (1972): Macroeconomic Theory. A Fundamental Revision, Albeuve: Castella.
Schmitt, B. (1975): Théorie unitaire de la monnaie, nationale et internationale, Albeuve: Castella.
Schmitt, B. (1984a): Inflation, chômage et malformations du capital. Macroéconomie quantique, Paris and Albeuve: Economica and Castella.
Schmitt, B. (1984b): La France souveraine de sa monnaie, Paris and Albeuve: Economica and Castella.
Schmitt, B. (2012): Money, effective demand and profits, in C. Gnos and S. Rossi (eds) Modern Monetary Macroeconomics, Cheltenham, UK and Northampton, MA, USA: Edward Elgar.
Schmitt, B. (2012): Sovereign debt and interest payments, in C. Gnos and S. Rossi (eds) Modern Monetary Macroeconomics, Cheltenham, UK and Northampton, MA, USA: Edward Elgar.
Cencini, A. (1984): Time and the Macroeconomic Analysis of Income, London and New York: Pinter.
Cencini, A. (1988): Money, Income, and Time. A Quantum-Theoretical Approach, London and New York: Pinter.
Cencini, A. and Schmitt, B. (1991): External Debt Servicing. A Vicious Circle, London and New York: Pinter.
Cencini, A. (1995): Monetary Theory. National and International, London and New York: Routledge.
Cencini, A. (2001): Monetary Macroeconomics. A New Approach, London and New York: Routledge.
Cencini, A. (2005): Macroeconomic Foundations of Macroeconomics, London and New York: Routledge.
Cencini, A. (2012): Towards a macroeconomic approach to macroeconomics, in C. Gnos and S. Rossi (eds) Modern Monetary Macroeconomics, Cheltenham, UK and Northampton, MA, USA: Edward Elgar.
Rossi, S. (2001): Money and Inflation: A New Macroeconomic Analysis, London and New York: Routledge.
Rossi, S. (2006): The theory of money emissions, in Arestis, P. and Sawyer, M. (eds.) A Handbook of Alternative Monetary Economics, Cheltenham and Northampton: Edward Elgar.
Rossi, S. (2007): Money and Payments in Theory and Practice, London and New York: Routledge.

External links[edit]


  1. Jump up ^ Smith, A. (1978), The Wealth of Nations, Pelican Classics: Harmondsworth (first published 1776).
  2. Jump up ^ Marx, K. (1973), Grundrisse, The Pelican Marx Library: Harmondsworth.
  3. Jump up ^ Ricardo, D. (1817), On the Principles of Political Economy and Taxation, J. Murray: London; reprinted Cambridge University Press: Cambridge, 1951.
  4. Jump up ^ Walras, L. (1952) Elémentsd'économiepolitique pure, ou la théorie de la richessesociale, Paris, LibrairieGénérale de Droit et de Jurisprudence.
  5. Jump up ^ Keynes, J.M. (1933/1973), ‘A monetary theory of production’. Reprinted in The Collected Writings of John Maynard Keynes, Vol. XIII The General Theory and After: Part I Preparation, London and Basingstoke: Macmillan, 408–11.
  6. Jump up ^ Keynes, J.M. (1936), The General Theory of Employment, Interest and Money.
  7. Jump up ^ Keynes, J. M. (1973), The Collected Writings of John Maynard Keynes, The General Theory of Employment, Interest and Money, London and Basingstoke: Macmillan.
  8. Jump up ^ Schmitt, B. (1984), This is in opposition to the Austrian Economic view that inflation is correlated directly to increases in the money supply. Inflation, chômage et malformation du capital, Albeuve: Castella.
  9. Jump up ^ Rossi, S. (2007), Money and Payments in Theory and Practice, London and New York: Routledge.
  10. Jump up ^ Cencini, A. (2005), Macroeconomic Foundations of Macroeconomics, London and New York: Routledge.

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