Quantum economics

Quantum economics (a.k.a. quantum macroeconomics, a.k.a. the theory of money emissions) is a branch of monetary economics developed by French economist Bernard Schmitt (1929), former Professor at the University of Burgundy, in Dijon, France, and at the University of Fribourg, Switzerland.

Another important adherent and contributor in quantum economics is Swiss economist Alvaro Cencini (1946), active at the University of Italian Switzerland (Università della Svizzera Italiana), in Lugano, Switzerland. Besides the aforementioned universities, the school is researching also through the Research Laboratory in Monetary Economics, at the Centre of Banking Studies (CSB), in Vezia, Switzerland.

The school aims to contribute to the development of the scientific understanding of the way our economic systems work, with particular reference to their monetary disequilibria and to how these could practically be dealt with. It is no mystery that inflation and unemployment are the source of serious troubles, which hinder the further growth of wealth as well as its distribution. Likewise it is widely admitted that exchange rates instability, stock exchange fluctuations and external debt are the main causes of disruption at the international level. It should also be recognised that our understanding of these anomalies has improved very little in the last century, and that economists are too often at a loss when asked to provide a diagnosis and propose a remedy. Quantum economics offers a new approach, based on a modern conception of bank money and capable of conveying the teaching of the greatest economists of the past (Adam Smith, David Ricardo, Jean-Baptiste Say, Karl Marx, Léon Walras, Eugen von Böhm-Bawerk, Knut Wicksell, John M. Keynes, and Jacques Rueff above all others), together with the main contributions of practitioners (bankers in primis) towards the setting up of a monetary theory of national and international economic systems. What is needed is a theory consistent with the nature of book-entry money and capable of accounting for the process of capital accumulation and circulation. The work carried out by the school is intended to help with this task and to provide the elements for a national and an international reform apt to modify the present system of payments consistently with the laws of (bank) money.

Money and income

"Instead of transferring a stock of money income (an operation which they carry out as financial intermediaries), banks issue simultaneously a negative money (debt entered on their liabilities side) and a positive money (debt entered on their assets side)" (Schmitt 1966: 235). "In popular representation as well as in many scientific texts, 'money' and 'credit' often get mixed up. [...] True credit has an object that may be monetary or real. Now, even when it is the object of credit, money is created neither by the borrower nor by the lender. A loan implies the transfer of already existing income while the borrower merely replaces the lender as the owner of an income that is neither created nor destroyed in the process. [...] Thus the analysis must be based on the incontrovertible fact that, while creating currency, banks lend a "zero" sum" (Schmitt 1984b: 46-7).
"Wages are not merely the result of an expenditure of money but the product of an expenditure of labor [...] . Workers emit real output and their wages are the result of the emission" (Schmitt 1984a: 95). "It is the unity of the new output and of its monetary form. When wages are paid, output is converted into money, i.e. it is issued as a sum of money. Clearly understood, this means that the creation of bank money is positive only when it is associated with produced output" (Cencini 2001: 117). "A positive money subsists, facing the negative money of [...] the whole set of firms [...] , which is immediately ‘filled’ with the product of workers. While physical output remains deposited within the negative money, workers own [...] a positive money equal to the amount of wages emitted" (Schmitt 1984a: 114).

Unemployment

What are the causes of involuntary unemployment? Contrary to what is often believed, quantum macroeconomics shows that pathological unemployment is due not to the behaviour of economic agents, but to a monetary anomaly affecting the process of capital accumulation. At the core of the anomaly is the fact that profits give rise to a bank deposit that never dries up, thus generating repeated financial lendings of the same sum. Once the process of capital accumulation has reached a level that no longer allows for a positive difference between natural and monetary rates of interest, new investments are necessarily reduced and employment shrinks. The analysis propounded by quantum economists develops along these lines and leads to a proposal for a monetary reform allowing capital to accumulate consistently with the very nature of bank money and with the logical and factual distinction between money, income and capital.

"As shown by Schmitt, both inflation and involuntary unemployment can be avoided by introducing at the banking level this threefold distinction, i.e. by asking banks to organize their activity in three departments: the monetary, the financial and the fixed-capital departments. Whereas the first two departments are needed to account for the logical distinction between money and income, the third is required to avoid profits already invested in the production of capital goods still being available on the financial market.

'If wages transformed into profits are not withdrawn from the financial market (represented by the second department), they make up a loanable fund that will nourish a second measure of final expenditures. Borrowers will spend an income already spent by households in the operation forming profits. The second expenditure of the (same) income is an empty emission, root of such disorders as inflation and unemployment' (Schmitt 1984a: 323).

The introduction of the third department thus averts the very formation of disembodied firms. Invested profits being transferred from the second to the third department, wages are no longer paid out of a positive income. The set of income holders remains the unique owner of the whole product—consumption and investment goods—and no empty money is created that modifies the relationship between total demand and total supply. 'All in all, the investment will be financed through savings, and no longer through void emissions' (Schmitt 1984a: 328)" (Cencini 2001: 204).

External Debt

The objective of this research is to show that the debt servicing problem is related to the present structure of monetary payments and the source of a peculiar anomaly: because of the payments of interests on its external debt, an equivalent amount of the indebted country's commercial exports is bound to remain unpaid. Hence, the international earnings of the country drop, not only in the trivial sense in which they are used to paying for the interests on its external debt, but also in the far more worrying sense that the payment of interests causes a total loss of twice the amount due.
As a consequence, interests on external debt are paid twice, thus causing an unjustified loss that weighs heavily on the population of an impressive number of countries. In a series of papers (Luanda papers), Schmitt shows the context in which such absurd double payment occurs and proposes an original accounting solution to the problem.

Relative Prices Indeterminacy

Neoclassical analysis, as well as a great part of Keynesian analysis, rests on the possibility to determine (relative) prices through direct exchange. Seriously challenged by the recent attempt to set out general equilibrium models of monetary economics, the neoclassical paradigm has not yet been abandoned. On the contrary, it still plays a fundamental role in most of theoretical economics. Yet, the school led by Schmitt and Cencini states, it is possible to prove 'beyond reasonable doubt' that relative prices are logically undetermined within neoclassical theoretical framework.

Major works

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.
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.

External links

* [http://www.csbancari.ch/istituti/RMElab/bibliography.htm Research Laboratory in Monetary Economics.]