The estimable Nate Hagens over at The Oil Drum recently quoted a bit of economic reasoning of chemist Frederick Soddy. You might recall Soddy from high school; he and Ernest Rutherford discovered that the atomic disintegration of certain elements resulted in the formation of new elements. The ‘radioactive decay’ of radium, for instance, resulted in the formation of helium, among other things.
Leaving Canada, Soddy then worked with Sir William Ramsay at University College, London where he continued the study of radium emanation. Here, Soddy and Ramsay were able to demonstrate, by spectroscopic means, that the element helium was produced in the radioactive decay of a sample of radium bromide and that helium was evolved in the decay of emanation.
From 1904 to 1914 Soddy was lecturer in physical chemistry and radioactivity in the University of Glasgow. Here he did much practical chemical work on radioactive materials. During this period he evolved the so-called “Displacement Law”, namely that emission of an alpha-particle from an element causes that element to move back two places in the Periodic Table. His peak was reached in 1913 with his formulation of the concept of isotopes, which stated that certain elements exist in two or more forms which have different atomic weights but which are indistinguishable chemically.
After his period at Glasgow he did no further work in radioactivity and allowed the later developments to pass him by. His interest was diverted to economic, social and political theories which gained no general acceptance, and to unusual mathematical and mechanical problems.
The is from the Nobel foundation website; Soddy received the Nobel Prize in chemistry in 1921.
His work in economics has been given little attention outside of what would be considered ecological economics. Conventional credit analysis avoids Soddy’s ideas like poison … no doubt because they do not offer an expansionary lunch.
A farmer who raises pigs faces biophysical limits on how many pigs he can take to market. But if that pig farmer took on debt – a promise to repay at a future date – he would in effect be issuing a claim or lien on his future production of pigs. If he borrowed the equivalent value of 100 pigs, he could represent the loan on his balance sheet as “-100 pigs.”
While debt as the farmer’s accounting entry is negative, negative pigs do not really exist. If the farmer should suffer a series of lean years and be unable to pay the interest, he might soon owe more pigs than could be raised on his farm. After a year, with interest looming, he’d show “-110 pigs”; in 5 years, “-161”; in 40 (assuming a patient bank), “-4526.” When the bank finally came to call on the pig farmer to collect repayment of its loan, it could well find that most of the virtual wealth that had grown so appealingly on its books had to be written off as a loss.
Soddy understood that money flows in marketplaces were less important than the energy flows in production. He contrasted real wealth which was always subject to entropy against virtual or money wealth which was an undying abstraction. To Soddy, the money universe’s illusory opportunities were irrelevant to the demands and constraints of the physical, energy- driven material universe.
Soddy’s Wealth, Virtual Wealth and Debt: The Solution of the Economic Paradox was published in 1926. Unlike Irving Fisher, who was a promoter of the inflating stock market bubble accompanying the go- go ‘Roaring Twenties’, Soddy pointed out the increasing disconnect between the virtual world the markets of the time were describing and the real, energy bound one.
Soddy’s obscure and unpopular economics is far from having its moment in the sun. He puts energy at the apex of economic activity, so he is allowed to drink at the bar. His intellectual pedigree runs through Kenneth Boulding, Robert Costanza, Herman Daly to Joseph Tainter and even unconventional ‘classic’ economists such as James Galbraith. At the same time, Soddy is the child of Thomas Malthus and John Stuart Mill.