From what I understand, the point of the Wheel is that every time a soul passes through it, a piece of it is chipped off, presumably by some process carried out by Rymrgand, and the energy from this soul piece is used to maintain the gods. Maybe there was some natural cycle of reincarnation in play before the Engwithans came along, and the Engwithans studied this process and managed to create the Wheel to more or less perfectly imitate it, but with the difference that it included this energy siphon for the gods. The Engwithans then destroyed the natural system to ensure that souls of the dead would have no option but to go the Wheel, because, well, they wanted their gods to last somewhere in the ballpark of forever. This is just a theory of course.