Market exchange rules responsible for wealth concentration

Mar 07, 2012

Two Brazilian physicists have shown that wealth concentration invariably stems from a particular type of market exchange rules – where agents cannot receive more income than their own capital. The authors concluded that maximum inequalities ensue from free markets, which are governed by such seemingly fair rules.

This study, published in European Physical Journal B, was conducted by J. Roberto Iglesias and Rita de Almeida from the Brazilian National Institute of Science and Technology of Complex Systems, based in Porto Alegre. This Brazilian city is famous for hosting the World Social Forum, which is designed to find alternatives to economic liberalism.

To study free market models, the authors used statistical mechanics methods focusing on the dynamic of wealth exchange over time. These methods were inspired by Boltzmann's theory of kinetic energy exchange between gas molecules during collisions. They found that over time, all the available wealth is concentrated among only a few agents. This is represented by a tail-shaped graph that confirms previous studies showing that wealth distribution follows a power law. As a result, the free market is stalled with no subsequent possible exchanges of wealth, even if wealth were distributed evenly from the start.

The authors concluded that regulations for the rules of wealth exchange are necessary to avoid concentration of wealth and stalling of market exchange. For example, systems in which regulations and taxes give the poorest agent a probability of wealth gain of over 50 percent may prevent wealth concentration and decrease inequalities. Also, the possibility of gains exceeding their own capital is crucial to permit a recovery of the poorer agents and to circumvent market stagnancy. Although such models analyse only an incomplete representation of the market and trade, further research could contribute to defining exchange rules that may help avoid future concentration.

Explore further: Galaxy dust findings confound view of early Universe

More information: Iglesias J.R., de Almeida R.M.C. (2012). Entropy and equilibrium state of free market models, European Physical Journal B (EPJ B) DOI 10.1140/epjb/e2012-21036-1

add to favorites email to friend print save as pdf

Related Stories

Inequality, 'silver spoon' effect found in ancient societies

Oct 29, 2009

The so-called "silver spoon" effect -- in which wealth is passed down from one generation to another -- is well established in some of the world's most ancient economies, according to an international study coordinated by ...

Is holiday giving an obligation?

Dec 16, 2008

Why do we suddenly become generous during the holidays? Why do gifts often bear greater symbolic than economic value? Why do we anonymously give to strangers?

Recommended for you

Galaxy dust findings confound view of early Universe

Jan 31, 2015

What was the Universe like at the beginning of time? How did the Universe come to be the way it is today?—big questions and huge attention paid when scientists attempt answers. So was the early-universe ...

Seeking cracks in the Standard Model

Jan 30, 2015

In particle physics, it's our business to understand structure. I work on the Large Hadron Collider (LHC) and this machine lets us see and study the smallest structure of all; unimaginably tiny fundamental partic ...

Building the next generation of efficient computers

Jan 29, 2015

UConn researcher Bryan Huey has uncovered new information about the kinetic properties of multiferroic materials that could be a key breakthrough for scientists looking to create a new generation of low-energy, ...

User comments : 0

Please sign in to add a comment. Registration is free, and takes less than a minute. Read more

Click here to reset your password.
Sign in to get notified via email when new comments are made.