When Frederick Soddy, winner of the 1921 Nobel Prize in Chemistry, put his thoughts on wealth creation to paper, he was widely dismissed as a hack and, to the detriment of society at the time, largely ignored.
is a fascinating subject, mostly because it is what, consciously or unconsciously, everyone is pursuing, yet very few understand the principles behind it. Soddy’s definition of wealth creation is simple and elegant. True wealth creation, in Soddy’s explanation, involves discovery, natural energy and human diligence
. It means producing goods or services that add value to our fellow humans’ lives such that they are willing to part with their hard earned money to receive them.
You don’t have to start the next Microsoft or Burlington Northern railroad or Exxon-Mobil to add value to people’s lives. Wealth creation involves businesses that create more comfort or facility in our human existence, even the simple discretionary income items like ice cream cones or flat screen televisions. (Which isn’t a knock on either ice cream or television. The energy that goes into bringing a single ice cream cone to a roadside stand near you is a fabulous example of wealth creation, but only for those involved in the creation and distribution of the ice cream. Once you consume it, its life cycle of wealth creation has ended, and you have to part with more hard earned money to consume more of it.)
In Soddy’s explanation, discovery literally means discovering something new; whether it be inventing a new process to harness the sun’s rays into heating your home, or discovering that putting an extra five-cent pane of glass in a window can reduce the energy costs of heating or cooling your home by two dollars per year.
Discovery doesn’t have to be finding something the world has never seen, but if you look at all the great wealth creators of the last two centuries, they did in fact seemingly come from nowhere (they were, in the most elemental sense, discovered) to create the majority of wealth we now have on earth: namely, refining the noxious sludge that bubbled from the ground and the oceans that is now refined into gasoline (and plastics and other products) that has transported (and heated and cooled) people all over the globe; namely, the alternate current machines that extend our evenings with artificial light so that goods and services (and homes and hospitals and grocery stores and university laboratories) can be produced around the clock to better our lives; namely, the piling on of transistors (and other electrical devices) onto a wafer-thin layer of sand that connects the world by voice, type, photograph and motion-picture video, and allows you to read this and many other articles at your convenience.
Oil and gas, coal, electricity, food, computers and the internet. The world’s richest people are involved in one or more of these industries. They (and many other industries) also utilize Soddy’s second part of his three-part wealth creation formula. Namely, natural energy, by which Soddy meant literally converting naturally-occuring earthly elements (such as oil, coal or crops) to usable goods and services for people’s lives.
The third part of Soddy’s wealth creation is human diligence, by which he meant the physical work humans do (drilling, mining, farming, etc.) or (and the biggest wealth creators learn this lesson quickly) the amount of work humans can either convince other humans to do for them, or through machines humans create to leverage their physical manpower into machine-operated human controlled or monitored energy.
Henry Ford would have only one tiny custom car shop in Michigan if it weren’t for his discovery that an assembly line could both save costs and time, yet multiply the output of his products. Steve Jobs and Steve Wozniak would still be spending their hours hand soldering circuit boards for a few wealthy nerds if it weren’t for the same leverage that speeds up the production of their Apple computer products.
So what role does money play in all this wealth creation? A curious one, if you are new to the ideas of Frederick Soddy, and a role that can often destroy rather than create wealth, if you’re not carefully following the principles of true wealth creation.
Coming Up: Part Three: Soddy’s Role of Money in Wealth Creation
Anthony Migyanka is an economist, has appeared on “Cavuto” with Neil Cavuto, and is recognised by the Fox Business Network as an Investor Relations Expert. He has also contributed public company governance, stock market and economic trend commentary to other media outlets, including FamilyNet TV, The Dow Jones Corporation and the Washington Post.
Anthony Migyanka is the Managing Partner
Mobile Money Minute, Texas USA