This week’s issue of The Economist has an article on the one per cent in the United States.
Here are two reasons why we have very rich people.
First, governments pass legislation which interferes with the workings of competitive markets. If markets were perfectly competitive there would be no profits and therefore no rich people.
For example, for there to be perfect competition it has to be easy for new firms to get into any industry and for that they must have knowledge of the technology. Patent legislation, whatever the merits of intellectual property arguments, restricts competition and allows the patent holder to make profits that otherwise would not be available.
Other examples of legislation that restricts competition are copyright, licensing, regulations and trade restrictions.
Second, the reason bankers become rich is that they create money when they make loans. This gives them a great deal of power in that they decide what projects go ahead and by whom. It also provides them with opportunities to take cuts for themselves and they also get to charge interest on the money they have created.
So, if we want a more equal economy we should repeal some of the legislation which restricts competition and we should look for another way to create money.