Frederick Soddy “The ruling passion of the age is to convert wealth into debt in order to derive a permanent future income from it – to convert wealth that perishes into debt that endures, debt that does not rot, costs nothing to maintain, and brings in perennial interest.” Frederick Soddy

amazon/ 1934 The Role Of Money – by Frederick Soddy

wiki/p2p Frederick Soddy’s Contribution to the Ecological Economics of Money – By Kristofer Dittmer:

medium/UCL/IIPP 12-2021 The Nobel Prize winner that predicted a crisis between nature and capital – by Erik S. Reinert

Since 1901, December has been a time for Nobel Prizes. Only in 1969, as an afterthought, the Swedish Central Bank established the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel — a decision that was met with protests by some members of the Nobel family.

Nevertheless, a scientist who used much of his time on economics was rewarded a Nobel Prize in 1921. Admittedly, Frederick Soddy (1877–1956) received the prize in chemistry, for his work on radioactivity. But in the period from 1921 to 1934 Soddy wrote four books campaigning for a radical restructuring of the global monetary system.

I have been leafing through Soddy’s book entitled, ‘Money versus Man’, published in 1931.[i] The book opens with a full-page quote from another English polymath, John Ruskin (1819–1900).[ii] The social problems of England in the 1840s — ‘The Hungry 40s’ — and the financial crises that followed in 1847 inspired Ruskin. The mass deaths in World War I and the crisis that started in 1929 provided new inspiration to Soddy.

For Ruskin, and later Soddy, consumption was the only purpose of the economy. ‘There is no wealth but life’ is the basic message in Soddy’s long quote from Ruskin. It is on this basis we should read the title of Soddy’s book, placing money as a kind of enemy for humankind. Here is a new type of economics: we have standard neoclassical economics, based on the metaphor of equilibrium between supply and demand, and we have evolutionary (Schumpeterian) economics based on a metaphor from biology (innovations as mutations). Soddy offered us a third angle: economics rooted in physics, in the laws of thermodynamics.

Humans survive, he wrote, based on the use of natural resources. If these resources are exhausted, we shall be in deep trouble. At the time Soddy was not taken seriously, but he is now seen as a forerunner for ecological economics. Romanian-born economist Nicholas Georgescu-Roegen (1906–1994) continued working in this tradition.

Soddy points to the fundamental difference between the biophysical resources and consumables — what he calls ‘real wealth’ — that are subject to the laws of thermodynamics. This wealth will rot, rust, wear out, or be consumed. Money and debt — which he calls ‘virtual wealth’ — are only subject to the laws of mathematics. Money can grow without limits, whereas the real economy cannot. In this mismatch, says Soddy, lies the roots of most of our economic problems.

A core subject for Soddy was therefore the underlying mismatch between the real economy and the monetary economy. This problem had been recognized already in Mesopotamia under the rule of Hammurabi (1810–1760 BC).[iii] Advised by his mathematicians, he solved the problem by cancelling debt with unpredictable intervals, a practice which in the Bible’s Old Testament survives under the term ‘Jubilee Years’. In 1772 the Welsh moral philosopher and mathematician Richard Price (1723–1791) formulated the problem — or opportunity — in this way: ‘A shilling put out at 6% compound interest at our Saviour’s birth would…have increased to a greater sum than the whole solar system could hold, supposing it a sphere equal to the diameter of Saturn’s orbit’.[iv] Even if we calculate Saturn’s orbit as we know it today, this would be a considerable lump of gold. Today it serves as a proof that any system involving compound interest sooner or later will collapse, as during financial crises.

In my view Frederick Soddy was right when it comes to the mismatch between the financial economy and the real economy, but the pessimism we often find in ecological economics does not necessarily follow from his teachings. Here the US economist Erasmus Peshine Smith (1814–1882) has an explanation as to why there are certain areas where we do not have to be that pessimistic.

Peshine Smith placed Man’s harnessing of Nature’s energy as the main moving force of the economy.[v] To Peshine Smith, Nature’s resources, especially her energy resources, have an infinite potential, in contrast to Malthusianism, Soddy, and part of ecological economics. In a sense Peshine Smith kept alive the spirit of the Renaissance and of Man’s undeveloped potentials.

Peshine Smith sought to develop economics into a quantitative engineering science: ‘to construct a skeleton of political economy upon the basis of purely physical laws.’[vi] He believed all economic laws to have their counterparts in those of the natural sciences, and proceeded to characterize the reproduction of wealth as a vast energy-transfer system within Nature’s overall equilibrium, the basic question being the extent to which Man would proceed to exploit Nature’s latent wealth.

He wrote to Henry Carey, a fellow economist: ‘The entire universe then is motion, and the only point is how much of the universal and ceaseless motion we shall utilize, and how much we shall permit to be working against us.’ His holistic view of the planet as described in the ‘Law of Endless Circulation in Matter and Forces’ is decidedly both ‘modern’ and ‘ecological’. Solar, thermal, and wind energy are the proof.

As indicated, to Peshine Smith economic growth was a product of the forces of nature — harnessed by Man — substituting for manual labour. ‘Twenty years ago’, says Smith, ‘a paper box of matches sold for a shilling. Now as many matches, of superior quality, are sold for a halfpenny’ — i.e. the price had been reduced to 1/24. ‘…in the meantime, by improved chemical and mechanical combinations, twenty-five boxes had come to be made by the same expenditure of human labour as one match required in its day.’ In a box with twenty-five matches, says Peshine Smith, twenty-four may be regarded as the contribution from Man’s harnessing of Nature — a Nature who gives her aid, and asks no recompense — and one as the result of muscular action.

Returning to the crisis with which we began, in a very informative New York Times op-ed in 2009, US ecological economist Eric Zencey (1953–2019) notes that Frederick Soddy had distilled his vision into five policy prescriptions, of which four since have become conventional wisdom: to abandon the gold standard, to let international exchange rates float, to 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). Soddy’s fifth proposal — the only one that remains outside today’s bounds of conventional wisdom — was to stop banks from creating money (and debt) out of nothing.

During the crisis Soddy lived through, the one that started in 1929, the imbalances between the real economy and the monetary economy were solved with Keynes’ theories that increased global demand. During the last crisis which started in 2008, the problem was instead solved by printing more money. In the US this was done by by Ben Bernanke — who referred to ‘helicopter money’ — and in Europe it was done by Mario Draghi. We can only assume that if Frederick Soddy had been with us today, he would have argued that this operation made the imbalance between the real economy and the financial economy even worse. The social consequences were indeed the opposite. If we look at the crisis of the 1930s in the US, income to capital as a percentage of GDP actually sank, while wages as a percentage of GDP rose [vii] (those who kept their jobs, kept their wages). Now the reverse has happened. In 1970 wages represented about 52% of US GDP. In 2013 that percentage was under 42%.

Reading Frederick Soddy reinforces an uneasy intuition that we may have a crack ahead of us.

NYT 1939 review of Soddy’s Role of Money 2-2013 On The Private Issue of Money – Cullen Roche

Brilliant quotes here from Frederick Soddy via Brett Fiebiger at the Monetary Realism site. No comment necessary from me:

On a historical note here is Frederick Soddy, Wealth, Virtual Wealth, and Debt, George Allen and Unwin, London, 1926, p. 147:

No doubt there are still many people, if not the majority, who will be frankly incredulous that money vastly exceeding in amount the total national money can be, and is created and destroyed by the moneylender with a stroke of the pen. How frequently does one still read in the Press that the banks can only loan their customers spare money! Most people still think of what money once was, “a public instrument owned and controlled by the State.””

Methinks much relevance to Krugmanites (i.e. EM) and to State-centric theories of money.…

More from Frederick Soddy, The Role of Money, George Routledge and Sons, London 1934, p. ix-x:

“This book will show what money now is, what it does, and what it should do. From this it will emerge the recognition of what has always been the true rôle of money. The standpoint from which most books on modern money are written has been reversed. In this book it is not treated from the point of view of bankers—as those who create by far the greater proportion of money—but from that of the PUBLIC, who at present have to give up valuable goods and services to the bankers in return for the money that they have so cleverly created and create. This, surely, is what the public really wants to know about money.

It was recognised in Athens and Sparta ten centuries ago before the birth of Christ that one of the most vital prerogatives of the State was the sole right to issue money. How curious that the unique quality of this prerogative is only now being rediscovered. The “money power” which has been able to overshadow ostensibly responsible government, is not the power of the merely ultra-rich, but is nothing more nor less than a new technique designed to create and destroy money by adding and withdrawing figures in bank ledgers, without the slightest concern for the interests of the community or the real rôle that money ought to perform therein.”

Page x: “To allow it to become a source of revenues to private issuers is to create, first, a secret and illicit arm of the government and, last, a rival power strong enough ultimately to overthrow all other forms of government.”

Remember the context is that the banking community plus orthodox economists were denying that banks can create money (knowing full well the opposite to be true) and at the same getting all “morally outraged” about abandoning gold-convertibility. The era was one were “gold” was hailed as the purest money and bankers were hypocrites for pretending they did not create money.

P51: “The Banker as Ruler.—From that invention dates the modern era of the banker as ruler. The whole world after that was his for the taking. By the work of pure scientist the laws of conservation of matter and energy were established, and the new ways of life created which depended upon the contemptuous denial of primitive and puerile aspirations as perpetual motion and the ability ever really to get something for nothing. The whole marvellous civilisation that has sprung from that physical basis has been handed over, lock, stock, and barrel, to those who could not give and have not given the world as much as a bun without first robbing somebody else of it… The skilled creators of wealth [in industry and agriculture] are now become hewers of wood and drawers of water to the creators of debt, who have been doing in secret what they have condemned in public as unsound and immoral finance and have always refused to allow Governments and nations to do openly and above aboard. This without exaggeration is the most gargantuan farce that history has ever staged.”

Soddy was called a “monetary crank” for describing endogenous money.

Page 62-3: “Genuine and Fictitious Loans.—For a loan, if it is a genuine loan, does not make a deposit, because what the borrower gets the lender gives up, and there is no increase in the quantity of money, but only an alteration in the identity of the individual owners of it. But if the lender gives up nothing at all what the borrower receives is a new issue of money and the quantity is proportionately increased. So elaborately has the real nature of this ridiculous proceeding been surrounded with confusion by some of the cleverest and most skilful advocates the world has ever known, that it is still something of a mystery to ordinary people, who hold their heads and confess they are “unable to understand finance.” It is not intended that they should.”

BTW Irving Fisher stole debt-deflation and the ‘100% Money’ reform from Soddy. 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.[1] 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 intro/pdf The Economic Thought of Frederick Soddy – by Herman E. Daly


jstorBJHS 1979 The Central Role of Energy in Soddy’s Holistic and Critical Approach to Nuclear Science, Economics, and Social Responsibility Thaddeus J. Trenn