Monetary economics from econophysics perspective

TL;DR

This paper explores monetary economics through the lens of econophysics, applying statistical physics concepts to understand money distribution, creation, and crises, challenging traditional economic views with a physics-inspired perspective.

Contribution

It introduces a physics-based approach to monetary economics, highlighting entropy and probability distributions, and critically examines fundamental monetary concepts and crises.

Findings

Unequal money distribution arises from entropy increase.

Statistical physics models can describe monetary transactions.

Econophysics offers new insights into monetary crises and money creation.

Abstract

This is an invited article for the Discussion and Debate special issue of The European Physical Journal Special Topics on the subject "Can Economics Be a Physical Science?" The first part of the paper traces the personal path of the author from theoretical physics to economics. It briefly summarizes applications of statistical physics to monetary transactions in an ensemble of economic agents. It shows how a highly unequal probability distribution of money emerges due to irreversible increase of entropy in the system. The second part examines deep conceptual and controversial issues and fallacies in monetary economics from econophysics perspective. These issues include the nature of money, conservation (or not) of money, distinctions between money vs. wealth and money vs. debt, creation of money by the state and debt by the banks, the origins of monetary crises and capitalist profit. Presentation uses plain language understandable to laypeople and may be of interest to both specialists and general public.