Ponzi schemes can be stable under non-increasing pay-outs (non-increasing longevity) and non-decreasing pay-ins (non-decreasing population). That's a problem in some of the developed countries.
(As much as some politicians hate immigration, it may be required to save their pension systems.)
Soddy contends that real wealth is subject to
entropy 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 of
thermodynamics. 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]
Bernie Madoff was an expert of the technique.
This infinite spiral is coming to an end (the tax office cannot get 4% ROI) so governments will think of something to get the needed funds.
Interesting!
Soddy's insights may have been true for the industrial era in which he lived and in which almost all wealth was embodied in physical objects.
But his insights don't apply to information economy phenomena such as error-correcting digital storage, Moore's Law, ubiquitous connectivity, network effects really change the nature of wealth and many wealth-generating processes. Also, the central flaw in applying thermodynamics to economics is the second law only applies to closed systems.
Does music rot, rust, wear out, or be consumed over time? Do algorithms rot, rust, wear out, or be consumed over time? Yes, specific software packages certainly do rot but the underlying algorithms continue to perform in perpetuity. When will heap sort rust away? If anything, the cheaper computation becomes, the more wealth is embodied in the algorithm because that algorithm can be used by more people in more situations more often.
That said, you are right about the tax office having some upper bound on returns.