The Quantum Of Money: QE, Repo, And…Niels Bohr

Denmark’s Niels Bohr considered himself more of a philosopher than a physicist, yet he contributed so much to the groundbreaking approach that became the basis for quantum physics. At the same time, Germany’s Werner Heisenberg was writing the famous paper on “his” uncertainty principle, Bohr was purportedly on vacation thinking up the deeper consequences and meaning of all its implications.

Upon returning from his holiday, the Dane wrote to Heisenberg urging the German to include some appreciation for what he thought must’ve been the greater fundamental truth going beyond strictly addressing uncertainty. Convinced, Heisenberg obliged and included the following as a note to his groundbreaking paper:

Bohr has brought to my attention the uncertainty in our observation does not arise exclusively from the occurrence of discontinuities, but is tied directly to the demand that we ascribe equal validity to the quite different experiments which show up in the theory on one hand, and in the wave theory on the other hand.

Indeed, Bohr’s idea came to be known as complementarity which he also applied to a great many more settings beyond strictly quantum physics or physics of any kind. In the latter, it was and is related to the uncertainty principle whereby Heisenberg had shown the limitations of even the best, most sophisticated experiments.

Is knowledge itself constrained by very real physical boundaries?

Niels Bohr made a stab at why these limits may have existed in the first place, and, more importantly, what they appear to mean for not just those who design and carry out the experiments but for those also trying to frame reality by human thought perhaps unsuited or at least ill-suited to the specific task.

Grossly oversimplifying, complementarity aligns with a great unknown; that “reality” itself may be literally indescribable in very big things as well as the very small purported building blocks of nature. We take what we know of fundamental particles, for example, from what we can observe of their specific interactions with each experiment, inferring a great deal from the instruments measuring only those specific interactions.

Thus, we have no choice (formalized in physics by Heisenberg’s uncertainty principle, as a start) but to keep in mind that each experiment only serves limited use. Individual experiments cannot produce a “single picture”, as Bohr said, of physical reality. By and large, complementarity demands we acknowledge the “totality of the phenomena.”

In Economics, though the differences between it and physical sciences are legion and immense, perhaps much of its inability to answer any larger questions stems at least in some large part from how it seeks out any answers at any scale: ceteris paribus. In holding “all else equal”, Economics then seeks to assure its interpretations of the wider reality of all those things artificially being held equal.

We do this all the time; in formalizing our understanding of bank reserves, for example, how do we describe them and their function? We get out our T-diagrams and conduct a thought experiment where one single bank might undertake a single transact with a single central bank, swapping directly one asset for another. Technically correct, this doesn’t actually tell us much or maybe anything important because in the real world the monetary “reality” which only begins with a QE transaction just might be equally indescribable and therefore leaving our limited thought experiment as valid upon only its own very narrow terms.

Mechanically true, otherwise potentially meaningless.

Such for the repo market, too. To understand this main point of modern money emphasis, we might conduct a limited thought experiment because to attempt anything more complex leaves us in a haze of misconception and within a tangle of seemingly potentially contradictory outcomes and reasoning. As Socrates in Plato’s Republic, we presume that whatever we might come up with for our narrow thought experiment must therefore apply to the system as a whole.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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