Wealth is under siege by political and economic forces. The most vital economic weapon in our War Chest is Cumulative Advantage. Simply put, it’s a mechanism operating across time (one lifetime and multiple generations) in which a favorable position becomes a resource that produces further gains and strengthens advantages. There are many names for and voicings of this phenomenon. Let’s take a look at a few:
The Matthew Effect was a term coined by sociologist Robert K. Merton in 1968. It is summarized by the adage “the rich get richer and the poor get poorer” and takes its name from a Bible passage. The Gospel of Mathew: For unto every one that hath shall be given, and he shall have abundance: but from him that hath not shall be taken even that which he hath. Matthew 25:29, King James Version.
Preferential Attachment is another name for the cumulative advantage process used in scientific – mathematical and biological analysis. It sets forth equations demonstrating how wealth (or credit for academic papers) is distributed among individuals according to how much they already have. So, those that are already wealthy receive more than those who are not.
Power Law is a statistical concept that describes the relationship between two quantities where one varies as a power of another. For example, the area of square varies as a power of 4 with regard to the length of its sides. Double the length the side of a square and the area is multiplied by a factor of four regardless of the size of the square. This relates to wealth because the distribution1 of wealth is governed by a power law function whereby the few overwhelmingly dominate the many. It’s quite natural and normal but social justice warriors hate it and want to redistribute the existing allocation of society’s resources by attacking the rich. However, the wealthy few are protected by the power law distribution of wealth2.
Our War Chest is defended by the undeniably powerful law of the vital few, also known as the Pareto Principle, named after an Italian economist in 1896, who noticed that 20% of the peapods in his garden contained 80% of the peas. Hey, let’s explore the 80-20 rule next week. These notions are potent weapons in the moral and intellectual defense of our wealth, which is under attack by those who despise the fact that wealth will always be concentrated in the hands of a few.
1 Using the word distribution implies that wealth is purposefully allocated in favor of some and not others. It’s not. Wealth allocates itself – not through some Marxist mechanism of exploitation.
2 This is Mother Nature not systemized oppression of the poor. There is a natural inverse relationship between the number of wealthy households and the size of their wealth. Similarly, the frequency of earthquakes varies inversely with their intensity. The number of cities with a certain population varies inversely with their population size.