Gödel's Theorem
The moral of Gödel's Theorem is that no model is exactly what is being modeled. Therefore no model can answer all questions about the phenomena being modeled. This applies to all models: engineering, scientific, climate, weather - and financial. The danger is believing that any model is all-knowing.
Gödel's Theorem in brief:

"For any system of arithmetic there exists a proposition such that it can neither be proven nor disproven within the model."

Corollary 1: Either the model is internally inconsistent, or
Corollary 2: The model is incomplete

Some models are internally inconsistent. All are incomplete.

Gödel developed this in 1931, the final nail in the coffin of absolute rational determinism, the notion that a structure of mathematical logic could be erected that eventually could "explain everything."

That does not mean that we can never know anything from a model. Some models are very useful; some we cannot function without. However, we can never hope to know everything from use of a model.

This applies to financial models just as every other. Trying to interpret exactly what is happening in an organization by examining its financial statements or cost reports is a useless exercise. At best, the statements only offer clues that can interpreted by knowing a great deal that is not in them.

For the same reason, no working organization is represented by the financial model based on transactions it conducts. The organization is its people, everything they do and work with, and all the relationships they have both inside the organization and outside. A financial shell (they exist) is not a work organization. It's only a model, but done using official units of human valuation -- dollars in the United States.


CONTEXT(Help)
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Compression Thinking »Compression Thinking
Compression vs. Expansion Thinking »Compression vs. Expansion Thinking
Expansion Economics »Expansion Economics
Systems Based on Markets »Systems Based on Markets
Directly value only things exchanged by transactions »Directly value only things exchanged by transactions
Gödel's Theorem
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