Nobel Prize-winning chemist and nuclear physicist Frederick Soddy was also a mathematician and economist, initially derided as an economic crank, but proved right on many points over time. The most basic truth of science is that every important discovery falsifies, with evidence, something that “everybody” knows.
The essence of his economic model is that There is now No Shortage of Wealth.
In the new economics there is now no difficulty in creating wealth. Unemployed labour and capital are only waiting to be given orders to proceed to do so. If it were understood once and for all that, when they had done so, the money would be issued by the nation to distribute the product at the same price-level as prevailed when the costs in connection with their production were incurred, nothing else would be necessary to ensure that all the unemployed labour and capital would permanently be put into full productive operation. From that moment the nation, as a matter of course, would be working all out for the creation of wealth for consumption and use as, during the War, it was working all out for the creation of wealth for destruction.
The Role of Money, Chapter VI, Physical Requirements of a Money System
Soddy proposed the ultimate Mommy and Daddy of economic soft landings.
It worked to wind up the Great Depression with war production in World War II, and kept going until deliberately destroyed by Reaganomics. It is working now in every aspect of Bidenomics.
Thomas Jefferson denounced British tyranny and Mercantilist economics in similar terms.
Let facts be submitted to a candid world.
- Vastly increased employment
- Vastly decreased unemployment
- Wages rising faster than inflation
- Supposed inflation—really price shocks and corporate gouging—down to the target rate
- US production increasing
- Massive infrastructure investment
- Massive investments in education
- Countering Global Warming
- Sustainable agriculture
- Health care
You name it.
Money is Fiction; Banking is Fraud
The first five chapters of the book are denunciations of metal and paper money, the fiction of creating money in fractional reserve banking, and their unavoidable consequences in the “business cycle” of inflationary bubbles and deflationary busts. To this we can add the insistence that in financial crises only the banks and megacorporations are to be rescued, not the victims.
This is not news. Adam Smith had written extensively about kings debasing their own currencies, and about the monstrous inflation in the Spanish Empire, due to the delusion that gold, silver, and jewels are wealth, rather than the ability to produce food, manufactures, or anything else useful.
The rest of Soddy’s book after Chapter VI takes up practical considerations about implementing his plan, and about the sorts of spurious objections that we see every day to going off fossil fuels or any other part of Bidenomics. We would have to unwind the existing system of bank loans and such without causing a panic, while the usual suspects did their utmost to create such a panic.
Frederick Soddy FRS[1] (2 September 1877 – 22 September 1956) 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.[3][4][5] In 1921 he received the Nobel Prize in Chemistry "for his contributions to our knowledge of the chemistry of radioactive substances, and his investigations into the origin and nature of isotopes". Soddy was a polymath who mastered chemistry, nuclear physics, statistical mechanics, finance and economics.[6][7]
Nobel Lecture – The origins of the conception of isotopes (1922)
In four books written from 1921 to 1934, Soddy carried on a "campaign for a radical restructuring of global monetary relationships",[20] offering a perspective on economics rooted in physics – the laws of thermodynamics, in particular – and was "roundly dismissed as a crank".[20] While most of 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, his critique of fractional-reserve banking still "remains outside the bounds of conventional wisdom" although a recent paper by the IMF reinvigorated his proposals.[20][21] Soddy wrote that financial debts grew 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.[20]
But now the real economy is based on soil, minerals, the Sun (wind, solar, tide, wave) and radioactive elements in the Earth’s interior (geothermal), none of which will run out for billions of years to come.
Commentary on Soddy
Op-Ed Contributor
INNOVATIVE and opaque instruments of debt; greedy bankers; lenders’ eagerness to take on risky loans; a lack of regulation; a shortage of bank liquidity: all have been nominated as the underlying cause of the largest economic downturn since the Great Depression. But a more perceptive, and more troubling, diagnosis is suggested by the work of a little-regarded British chemist-turned-economist who wrote before and during the Great Depression.
Frederick Soddy, born in 1877, was an individualist who bowed to few conventions, and who is described by one biographer as a difficult, obstinate man. A 1921 Nobel laureate in chemistry for his work on radioactive decay, he foresaw the energy potential of atomic fission as early as 1909. But his disquiet about that power’s potential wartime use, combined with his revulsion at his discipline’s complicity in the mass deaths of World War I, led him to set aside chemistry for the study of political economy the world into which scientific progress introduces its gifts. In four books written from 1921 to 1934, Soddy carried on a quixotic campaign for a radical restructuring of global monetary relationships. He was roundly dismissed as a crank.
The Chicago Plan Revisited
IMF Working Paper
At the height of the Great Depression a number of leading U.S. economists advanced a proposal for monetary reform that became known as the Chicago Plan. It envisaged the separation of the monetary and credit functions of the banking system, by requiring 100% reserve backing for deposits. Irving Fisher (1936) claimed the following advantages for this plan:
(1) Much better control of a major source of business cycle fluctuations, sudden increases and contractions of bank credit and of the supply of bank-created money.
(2) Complete elimination of bank runs.
(3) Dramatic reduction of the (net) public debt.
(4) Dramatic reduction of private debt, as money creation no longer requires simultaneous debt creation.
We study these claims by embedding a comprehensive and carefully calibrated model of the banking system in a DSGE model of the U.S. economy. We find support for all four of Fisher's claims. Furthermore, output gains approach 10 percent, and steady state inflation can drop to zero without posing problems for the conduct of monetary policy.
Some pre-Great Depression roots of The Chicago Plan (& Minsky’s Financial Instability Hypothesis)
Various special pleaders wanted to give Chicago school economists credit for this “crankery” once it became respectable.
The direct link is from radiochemist Frederick Soddy (best known for his 1926 Wealth, Virtual Wealth and Debt) who has often been criticized as a “crank” writing outside of his field and dismissed – perhaps incorrectly, as we will see – as un-influential (Soddy is usually associated with Full Reserve Banking – he was against the gold standard and for floating exchange rates – and/or known for arguments related to ecological economics). The degree, directness, and timing of Soddy’s impact may have been underestimated.
“In March 1933, a group of economists at the University of Chicago, evidently with little if any influence from Soddy, gave very limited circulation to a six-page statement..” (Allen 1993, 705).
Yet it seems both Phillips and Allen overlook a key piece of evidence that shows that the hugely influential Frank Knight, one of the original architects of the confidential 1933 memorandum on banking reform (and teacher of Milton Friedman, George Stigler, James M. Buchanan and senior collaborator with the young Hyman Minsky) was directly influenced by Soddy’s work. Perhaps more remarkably, Knight was influenced well before the Great Depression.
Soddy on Economics