[mhuffman]

>That means to the extent you believe the "prop them up" part of the theory, you must also believe that most wealth concentrations arise more from things like theft, and less from things like value creation. My experience has been that this seems untrue today and almost certainly becomes more untrue every year (but I do understand that reasonable observers may disagree).

It is pretty well demonstrated and accepted that both IQ and talent (in anything, business, sports, art, whatever) have a Gaussian (normal) distribution, but wealth does not. It has a Pareto (power) distribution.

So there is something more than just offering value (ie. the results of talent or IQ or even work) that contributes to the accumulation of wealth.

Some of this has to do with the "Snowball Effect" where it is easier to make more money at a faster rate, the more money you have.

But even that doesn't really get to the heart of the issue.

There is another surprising effect at play!

In a non-sophisticated version (ie. the version everyone is taught in the beginning economics classes) of economics, there is an assumption that someone pays money that they believe is equal to value of some thing that they want. And if this is true, no wealth actually changes hands. You paid $X for something that is worth $X to you ... and maybe others and the person that sold it to you got $X of value which is what they thought it was worth selling it at. The seller is richer by $X but you are richer by something worth $X, so it is really a wash.

But we have to pretend in this case that both sides know the worth of the item in question. And this is almost never the case!

If we allow for whoever "misjudges" the value to be the "loser" and the other to be the "winner" in the exchange as measured by one or the other getting a little more value out of the deal than the other, then something magical happens.

If you play out this scenario (and you can model it yourself in your favorite software) with many "agents" doing these deals, and if you give every single transaction a completely blind and fair chance of 50/50 of being the winner and loser in the transaction, and you do this many, many times ... one agent will always end up with ALL the money in the end!

And this is without theft (as the gp comment insinuated) and is also without there necessarily being any "real value" created (as you suggested).

There is very interesting and recent research in this area[1].

BTW, I used to think more like you than the GP comment (and I still don't really agree with the GP comment) but if you take the time to look into the research and understand the math behind what is going on, it is a real eye-opener and a different perspective on why wealth inequality seems to show up in basically every type of economy and society given enough time.

https://www.scientificamerican.com/article/is-inequality-ine...

[alasdair_]

> The seller is richer by $X but you are richer by something worth $X, so it is really a wash.

It’s NOT a wash though - 2X is a bigger absolute number than the sum of the two pre-trade inputs. Or put another way, if I trade some of my giant stack of hotdogs for some of your giant stack of hot dog buns, we are BOTH better off and value has increased.

[mhuffman]

No, it is a wash, and so is your scenario. It is not a 2X gain. They both had an X and swapped it with each other.

In you scenario, I am poorer of hotdog buns and you are poorer of hotdogs, but I am richer of hotdogs and you are richer of hotdog buns.

You insinuate, but don't state, that maybe the completed hotdogs are worth more than either of the parts individually (ie. if I had one bun and one dog they would be worth less (together but separated) than if I put the dog into the bun), and maybe that could be true, but it isn't necessary.

[nybble41]

> maybe the completed hotdogs are worth more than either of the parts individually

Yes, this was obviously the entire point. You can assume that this is true in any case where people voluntarily agree to trade anything: For each party to the trade, what they receive is worth more to them than what they gave in exchange. If it were merely a wash no one would bother trading. Either party could be wrong about the expected gain in any particular instance—economic calculation is not an exact science—but on the whole across many trades each individual can reasonably expect a net positive value from the trade; i.e. market exchange is not zero-sum. And since both parties benefit, there is a net economic benefit from the trade as a whole.

The point of economics and trade is to create value by allocating goods to their most-valued use. The goods themselves remain the same but the value increases with each trade. It is not correct to look at an exchange of good A for good B and conclude that goods A and B must be of exactly equal value from all perspectives, and that therefore no value has been created in the process. Good-A-with-new-owner has more economic value than Good-A-with-previous-owner, and the same is true for good B.

Going back to the original example, if I'm selling hot dogs for cash then what I want is cash (or something else I can buy with it). I have no use for hot dogs, as such. If for whatever reason I were unable to sell them they would just go to waste. By selling a hot dog I gain some cash and lose one hot dog, which (unsold) is worth much less than the asking price. I might even have to pay to dispose of any extras when they expire. The buyer likewise valued the hot dog more than the cash at the time of purchase or they wouldn't have made the trade. After all, one can't eat money.

[mhuffman]

>Yes, this was obviously the entire point. You can assume that this is true in any case where people voluntarily agree to trade anything: For each party to the trade, what they receive is worth more to them than what they gave in exchange.

I do not necessarily agree with your comment, but it is irrelevant to my main point.

Even if it were always 100% true that both parties somehow gained value (that could be equated to money), if the differences between those two gained amounts unequal, then the agent-model works just the same ... at some point one (or a few) agents will still end up with all the money!

[nybble41]

> …both parties somehow gained value (that could be equated to money)…

Value cannot be equated to money. This is the point you keep missing. Money is a specific good while value is subjective and variable. While you can say that at any given point in time a certain "agent" valued one good more or less than another, based on observed behavior, it makes no sense to try to compare the magnitude of the values placed on a good by two different "agents". Moreover the same agent can value a good more than its price (in money) at one time, and yet value the same amount of money more than an equivalent good at another time; the fact that someone is willing to pay $5 for one hot dog does not imply that they would be willing to pay $10 for two. In general, barring the limited cases where items are more useful as a set than they are individually, the more one has of something (even money) the less one is willing to give to obtain more of the same.

If there were an "agent" that always valued money over every other good, never needed to buy anything to sustain itself, and had an unlimited supply of goods to sell (such as labor over an unlimited time period), perhaps they could end up with all the money. That's a totally unrealistic scenario, of course, but there is a bigger problem: If the total supply of money is held by a single entity then it is no longer a customary means of indirect exchange, and thus no longer money. People would settle on some other means of exchange and the (former) money would become worthless as currency.

[mhuffman]

I wildly disagree with nearly everything you have written here.

Some notes:

>Value cannot be equated to money. This is the point you keep missing.

Out of curiosity, how do you think trade of any sort works in a capitalist society? In almost any case you can imagine there has been some conversion of money for a trade to be able to take place.

> That's a totally unrealistic scenario, of course, but there is a bigger problem: If the total supply of money is held by a single entity then it is no longer a customary means of indirect exchange, and thus no longer money. People would settle on some other means of exchange and the (former) money would become worthless as currency.

Would the new means of exchange be the "money" then?

On computer simulations, yes, one person ends up with all the money. And of course in the real world that is not the case. It ends up an oligarchy ... up until the "poors" revolt! You will notice that this has happened many, many times throughout history.