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Economics

Economy as a branch of Moral Philosophy

Economy is not a science, and cannot be approached as such. At the basis of every economic system is a specific view of how humans should live together.

Stable economic systems

It is our conviction that the most important unanswered question in modern economic theory is the following:

how can we create a stable and sustainable economic system without stifling innovation?

Economic history is a history of booms and busts. Mankind’s economic systems have, almost without an exception, proven to be unstable.

• We believe that an economy’s money system is a key determinant of its stability (cf: money and credit conversion)

• Technology can help (cf: crypto-finance)

• Rational decisions at various levels of economic activity. In particular can we make economic rationality at the individual level match rationality at societal level.

• Innovation, randomness and change: is the desire for short-term stability (one of the main reasons for government intervention) the cause for larger-scale instability?

Robust financial market models

During the 1960s, Benoît Mandelbrot showed that financial market returns do not adhere to the standard model, but have much higher (possibly infinite) variance, are discontinuous and have long-term memory. Today, half a century later, almost all economic models taught at universities are still based on the normal distribution, as are the risk models underlying the Basel computations.

These models work most of the time, but tend to break down completely in times of stress. Significant work remains to be done to develop robust alternative models, which correctly reflect actual levels of risk.

Only when such models become widely used can we hope to better prepare for, and maybe avoid, future crises.

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