Wealth Creation Part One
In 1921, Frederick Soddy, an Englishman, won the Nobel Prize in Chemistry for his work with radioactive material. His work is significant because he discovered much about radioactivity (he coined the term “isotope”) that we use to create energy in the form of electricity worldwide.
Perhaps feeling as if he had maxed out his contributions to chemistry and engineering, Soddy turned his attention to economics (the science that studies the production, distribution and consumption of goods and services).
Always viewing the world through the eyes of a scientist (a preeminent one at that), Soddy believed that true wealth creation must follow certain laws, just as water follows the path of least resistance, or as earth bound objects follow the law of gravity. In fact, economics, like any scientific truth, should be governed by one unalterable unassailable law because multiple “truths” about a subject would ultimately be inconsistent, produce varying results, and be proof that our species simply has not discovered the true underlying operation of that subject matter.
Under those assumptions, Soddy took to task the Bank of England. He believed the Bank of England (and the rest of the world) should remove themselves from the gold standard of banking and currency, meaning, essentially, a country’s currency should be compared to other countries’ currencies as a measure of fiscal health, rather than compared to how much shiny gold metal their vaults could hold.
He also believed that banking (the creating and lending of “debt-money,” as they called it in Soddy’s day) should be the sole responsibility of a government and not farmed out to private merchants (private banks), who would perhaps manipulate and take advantage of their unreal ability to create money from thin air, and cause more people to go into debt than an economy could support.
He was, of course, as most brilliant minds, not only mocked mercilessly by “actual” economists of his day, but also roundly dismissed as a wannabe (my term, not theirs) and hack who should stick to his radioactive knitting, and leave money talk to the “experts.”
Also, like most brilliant minds, he was way ahead of his time. (The Bank of England would abandon the gold standard and let their currency “float” against the world’s in 1992, only after American (Stanley Druckenmiller) and Hungarian (George Soros) hedge fund managers proved to them the Bank’s eyes were bigger than their stomachs and forced the Bank of England to buy back more of their own money than they could possibly afford. (America, and the rest of the world, had long abandoned the gold standard when they too realized they had to pay for more “stuff” than the amount of shiny metal in their vaults would allow.)
Soddy’s scientific disagreement with the world’s misguided definition of wealth creation (which in effect was the creation of money, not true wealth, the difference of which are significant in Soddy’s opinion) also foretold every financial crisis in US history (The Great Depression, America abandoning the gold standard, oil shocks, Carter’s “Malaise”, the failure of LTCM in 1998, and the current US housing market collapse).
Soddy’s foresight was based in scientific methodical investigation of actual wealth creation: namely, observation of all relevant data (not opinions), and the drawing of conclusions based on unbiased rational sorting of real-world examples of wealth creation (considering Soddy had a front row seat for the Industrial Revolution, he had much recent unassailable historical fact to study) from which to construct a workable theory that is not only true in all cases, but infinitely reproducible by anyone who can understand the theory and put it into practice.