Wednesday, May 16, 2012

Prosperity creates poverty

“Capital is that part of wealth which is devoted to obtaining further wealth"- Alfred Marshall

Continuing from my previous post, where we saw that the same wealth distribution patterns across time and across cultures, you'd wonder what causes this. Is it a result of how we as people are, how we interact and how are economic systems function? Can we create a mathematical model that is based on human behavior as it relates to money and would it give us the same distribution?




Is the world really a zero sum game?
Can the poor actually carry out their wealth maximization objective?
Would forcibly removing the wealth maximization objective lead to prosperity?


  1. I remember you had always wanted study this phenomenon. Very interesting results. What if you added a condition that one needs to at least a minimum amount for basic survival. I think you'll find that the model skews even quicker. The amount discretionary income/wealth is key to future growth of wealth. for eg. a poor person doesn't have any savings so can't grow wealth and vice versa for a rich person

    I'm also interested in the number of iterations it takes for the skewing to occur. That could be a proxy for the number of generation or years it takes for wealth to concentrate

  2. You're right in that if you add the condition of minimum wealth, then the wealth skew happens even faster.

    You start seeing the skew after around 300 iterations - and these iterations might be more representative of transactions, rather than generations. Interestingly, the more iterations you run, the more pronounced the distribution skew is. In the real world, generally the more developed a country is, the more wealth is concentrated amount the wealthiest.