Abstract
The aim of the last chapter is to extract and aggregate knowledge from the previous chapters and to formulate a simple model that captures principles of market resource allocation. The model should come with an explicative principle of market inequality in economic distribution for which it abstracts to the utmost from agent’s subjectivity, randomness and idiosyncrasies. Therefore, we assume homogeneous agents in order to eliminate individual differences as the determinant of inequality. This assumption secures that inequality detected among agents with the same decision-making process stems from the system characteristics of the production process which is based on the market mechanism. Beside the market-isolating effect, it is necessary to understand that the proposed model concerns abstract principles of the market mechanism which enables to consider not only typical microeconomic actors (firms and households/individuals), but also national states and other geographical or political entities organized by a market system.
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Notes
- 1.
Further explanation of Schumpeter’s views of capital market as the “headquarter of capitalist economy” is provided by Kurz (2012).
- 2.
Theoretical insight into persisting inequalities in the context of imperfect capital markets is provided in the first theme of Mookherjee and Ray (2003).
- 3.
Piketty supports the idea of using own resources by the claim that most of growth relies on domestic, not foreign investments on macroeconomic level (2014).
- 4.
It is also evident that by assuming perfectly functioning capital market with no credit constraints, where all agents, regardless the amount of their resources, would be able to finance their potentialities, we might observe, upon additional assumptions, converging tendencies, as indicated e.g. in Aghion et al. (1999).
- 5.
Harris similarly defines “necessary consumption” as a “quantity required for consumption in order that a unit of labor may be maintained in production”. (1978:55) The term “reproductive consumption” is used in feminist theory. (e.g. Fletcher 2006) Adorno and Horkheimer, inspired by Marx, speak about “cultural minimum”. (2002 [1944]:142)
- 6.
An interesting discussion on investible surplus under competition and subsistence constraints can be found in Edwards (1971) who concludes that competition is harmful for maximizing investible surplus in developing communities.
- 7.
Despite decreasing marginal utility was historically connected rather with logarithmic function (e.g. Daniel Bernoulli), n-th root eases to calculate values of the Euclidean distance (0,1).
- 8.
On the other hand, the “probability of survival” must be understood a bit more loosely since we assumed that agents operate with a “subsistence insurance”.
- 9.
The authors find a wide dispersion in the marginal propensities to consume across the wealth distribution. Mostly, less wealthy households have much higher marginal propensity to consume than wealthier households. According to them the ratio between wealth and income is the key determinant of marginal propensity to consume. Theoretical aspects of these determinations were researched in the context of the neoclassical model by Chatterjee (1994). This opposes older statistical estimations of Kuznets (1946) and Goldsmith (1955) regarding long-run constancy of the propensity to consume and redefinitions by Duesenberry (1949) or Friedman (1957). The proposed reformulation however accentuates the necessity to consume which implies that agents are forced to expend relatively less with increasing total resources.
- 10.
One of the most cited studies in this regard is Persson and Tabellini (2000).
- 11.
An interesting article that confronts measurability and hence comparability of performances on the market itself was elaborated by Neckel and Dröge (2002). The article is particularly exceptional in the context of notorious incomparability of interpersonal utilities, asserted particularly by Austrian proponents, e.g. by Rothbard (2011).
- 12.
Except discussions on dynamic modelling with Cobb-Douglas production function in macroeconomics.
- 13.
Here we see why must be defined on (0,1).
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Maialeh, R. (2020). The Dynamic Model of Market Inequality. In: Dynamic Models and Inequality. Contributions to Economics. Springer, Cham. https://doi.org/10.1007/978-3-030-46313-7_7
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