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Frederick Soddy’s contribution to Economic Thought

[extracts from his book Wealth, Virtual Wealth and Debt, and from a Wikipedia entry]

In four books written from 1921 to 1934, British scientist and Nobel laureate Frederick Soddy pursued a campaign for a radical restructuring of global monetary relationships, offering a perspective on economics rooted in the laws of thermodynamics. His proposals – to abandon the gold standard, let international exchange rates float, use federal surpluses and deficits as macroeconomic policy tools that could counter cyclical trends, and establish bureaus of economic statistics (including a consumer price index) in order to facilitate this effort – are now conventional practice. However his critique of fractional-reserve banking is still regarded by many conventional economists as too radical. Soddy wrote that financial debts grow exponentially at compound interest but the real economy was based on exhaustible stocks of fossil fuels. Energy obtained from the fossil fuels could not be used again. This criticism of economic growth is echoed by his intellectual heirs in the now emergent field of ecological economics.

Extracts from Soddy’s Wealth, Virtual Wealth and Debt

The definition of wealth has always been the touchstone of clear thinking in economic matters, and after centuries of effort that definition still eludes most people. Aristotle tried to clarify the issues by defining wealth as all things whose value can be measured in money. The Roman jurists, in their practical fashion, followed suit in defining wealth as what can he bought and sold with money. Their coin money had a real positive tangible existence and also had a quantitative intrinsic value as precious metals.

As generally understood today, debt-money is merely a claim to wealth, and to define wealth as that which can be claim ed by claims to wealth, or can be measured by the numerical legal claims to wealth called money, is merely like defining a fluid as that which can be measured by an empty vessel, capable of holding the fluid and called a fluid measurer. It adds nothing to our understanding of space and time if length is defined as that which can be measured with a length-measurer called a ruler and time as that which can be measured by a time- measurer called a clock.

Most economists, past and present, identify real physical positive wealth with tangible earthly assets. For them, Wealth is what is measured with a wealth-measurer called money. Their numerous difficulties and apparent inconsistencies regarding the real nature of wealth were, and still are, simply solved by ignoring them entirely and to base their understanding, as the Roman jurists of old did, upon the principle of exchangeability as the sole criterion. That alone is wealth which can be exchanged for money.

The whole idea of balancing one thing against another in order to measure its quantity involves equating the quantity measured against an equal and quasi-opposite or other quantity. Wealth is the positive quantity to be measured whilst debt-money as the claim to wealth is a negative quantity of wealth owed to but not owned by the legal owner of the debt-money. The ability to measure the exchange-value of wealth by money was deemed the one and only thing necessary to confirm economics as a quantitative science fit to rank with the great mathematical and physical group of exact sciences. Instead unfortunately, it has reduced most academic economics to the chaos and utter futility everywhere apparent today. Society is now dominated and administered not by and for those who create real wealth and health, but by and for those who create want and unreal debt.

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