For to everyone who has, will more be given, and he will have abundance; but from him who has not, even what he has will be taken away – Matthew 25:29
Many of us are familiar with the Pareto Curve, though we probably do not recognize the term. If you have ever heard a dreadlocked hippie whine about the so-called 1% (probably around 2 pm on a workday), you already understand Pareto basics:
This is the graph on which Bernie Sanders bases his entire political philosophy. It shows that a disproportionate 10% of earners own 62.9% of the wealth as of 2003. Even more disproportionate is the fact that the top 1% of earners own 25% of the wealth.
Seems inequitable, right?
Well, maybe. There’s certainly a rational debate to be had about the distribution of wealth. However, what if I told you that the Pareto Curve holds true regardless of the chosen form of economic production? Even further, what if I told you that the Pareto Curve holds true in any endeavor in which there is variability in individual ability, creativity or production? That is exactly what the Matthew Effect suggests.
The Matthew Effect is best described as something of a natural law that is not yet fully understood. The basic theory is that advantage begets advantage. The square root of any random sampling of competitors in any system will achieve half of all of the rewards of the system. Dr. Jordan Peterson, a Canadian psychologist, discussed the Matthew Effect in this fascinating clip. Peterson uses music production as an example. If you were to look at a random sample of 100 composers, ten of them would produce 50% of the music that is played. Of those ten, if you were to look at 1000 of their songs, thirty of the songs would be played 50% the time. The Pareto Curve is the geometric representation of this phenomenon.
Collectivists like Marx have been known to point to the distribution of wealth in capitalist societies as a flaw with capitalism itself. However, since the Matthew Effect holds true across economic production systems, it turns out that such a critique cannot hold water. The Pareto Curve in a collectivist society will, in fact, look exactly the same as the graph above. Thus, wealth accumulation among a small percentage of the population is not a fault of capitalism alone.
Taking the Matthew Effect into account, we have a new argument for capitalism. The standard of living among the poor in America, the most productive capitalist society on earth, is far higher than the standard of living among the poor in the rest of the world. In fact, according to The Economist, the 10% poorest people in America live better than the 10% richest people in Russia, and Portugal, both collectivist societies. The same holds true in relation to Mexico, a mixed economy, as well as Brazil and Turkey. Here is the graph:
Thus, if income inequality is a natural law that holds true among every system of production, it seems that it is still better to live in a society where capitalism is the dominant system of economic production.
The Matthew Effect is a relatively young and understudied phenomenon. But one thing is clear, when Marxists claim that income inequality is a negative byproduct of capitalism, they are wrong. Rather, it is a feature of every economic production system known to man. This is a powerful new premise on which we should begin the debate on how to solve the problem of income inequality.