Wealth, Virtual Wealth and Debt
Encyclopedia
Wealth, Virtual Wealth and Debt is a 1926 book by the Nobel prize-winning chemist Frederick Soddy
on monetary policy and society and the role of energy in economic systems.
Soddy criticized the focus on monetary flows in economics
, arguing that “real” wealth was derived from the use of energy to transform materials into physical goods and services. Soddy’s economic writings were largely ignored in his time, but would later be applied to the development of ecological economics
in the late 20th century.
Soddy wrote that real wealth was subject to the inescapable entropy
law of thermodynamics
and would rot, rust, or wear out with age, while money and debt – as accounting devices invented by humans – were subject only to the laws of mathematics. Rather than decaying, virtual wealth, in the form of debt, compounding at the rate of interest, actually grows without bounds. Soddy used concrete examples to demonstrate what he considered this flaw in money economics
in his book.
Frederick Soddy
Frederick Soddy was an English radiochemist who explained, with Ernest Rutherford, that radioactivity is due to the transmutation of elements, now known to involve nuclear reactions. He also proved the existence of isotopes of certain radioactive elements...
on monetary policy and society and the role of energy in economic systems.
Soddy criticized the focus on monetary flows in economics
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
, arguing that “real” wealth was derived from the use of energy to transform materials into physical goods and services. Soddy’s economic writings were largely ignored in his time, but would later be applied to the development of ecological economics
Ecological economics
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in the late 20th century.
Real wealth and virtual wealth
In his 1926 book Wealth, Virtual Wealth and Debt: The Solution of the Economic Paradox (a book that presaged the market crash of 1929) Soddy pointed out the fundamental difference between real wealth – buildings, machinery, oil, pigs – and virtual wealth, in the form of money and debt.Soddy wrote that real wealth was subject to the inescapable entropy
Entropy
Entropy is a thermodynamic property that can be used to determine the energy available for useful work in a thermodynamic process, such as in energy conversion devices, engines, or machines. Such devices can only be driven by convertible energy, and have a theoretical maximum efficiency when...
law of thermodynamics
Thermodynamics
Thermodynamics is a physical science that studies the effects on material bodies, and on radiation in regions of space, of transfer of heat and of work done on or by the bodies or radiation...
and would rot, rust, or wear out with age, while money and debt – as accounting devices invented by humans – were subject only to the laws of mathematics. Rather than decaying, virtual wealth, in the form of debt, compounding at the rate of interest, actually grows without bounds. Soddy used concrete examples to demonstrate what he considered this flaw in money economics
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
in his book.
Quote
"Debts are subject to the laws of mathematics rather than physics. Unlike wealth, which is subject to the laws of thermodynamics, debts do not rot with old age and are not consumed in the process of living. On the contrary, they grow at so much per cent per annum, by the well-known mathematical laws of simple and compound interest ... It is this underlying confusion between wealth and debt which has made such a tragedy of the scientific era."External links
- The Role of Money, Frederick Soddy (George Routledge & Sons Ltd, 1934. Internet Archive Gutenberg)