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 Humanity's economic system viewed as a subsystem of the global environment |
Concepts
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Wealth, Virtual Wealth and Debt is a 1926 book by the Nobel Prize–winning chemistFrederick Soddy on monetary policy and society and the role of energy in economic systems. Soddy criticized the focus on monetary flows ineconomics, 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 ofecological economics in the late 20th century.[2]
In this book Soddy points out the fundamental difference between real wealth (consumables such as buildings, equipment, energy, food) and virtual wealth, in the form of money and debt. Soddy contends that real wealth is subject toentropy and will rot, rust, wear out, or be consumed over time, while money and debt (as artificial accounting devices) are subject only to the laws of mathematics, not the laws ofthermodynamics. As debt compounding at some rate of interest, virtual wealth will grow effortlessly over time and without limit, instead of diminishing with use as does real wealth. Soddy uses actual occurring examples to demonstrate what he considers a major flaw of prevailing economic theory.[3]