Pareto Optimality

There are some solutions. (“If you don’t give a solution, you are part of the problem”). Most important: Human wealth should be set as the only goal in society and economy. Liberalism is ruinous for humans, while it may be optimal for fitter entities. Nobody is out there to take away the money of others without working for it. In a way of ‘revenge’ or ‘envy’, (basically justifying laziness) taking away the hard-work earnings of others. No way. Nobody wants it. Thinking that yours can be the only way a rational person can think. Anybody not ‘winning’ the game is a ‘loser’. Some of us, actually, do not even want to enter the game.

Yet – the big dilemma – that money-grabbing mentality is essential for the economy. Without it we would be equally doomed. But, what we will see now is that you’ll will lose every last penny either way, even without divine intervention.

Having said that, the solution is to take away the money. Seeing that the system is not stable and accumulates the capital on a big pile, disconnected from humans, mathematically there are two solutions:

1) Put all the capital in the hands of people. If profit is made M’-M, this profit falls to the hands of the people that caused it. This seems fair, and mathematically stable. However, how the wealth is then distributed? That would be the task of politicians, and history has shown that they are a worse pest than capital. Politicians, actually, always wind up representing the capital. No country in the world ever managed to avoid it.

2) Let the system be as it is, which is great for giving people incentives to work and develop things, but at the end of the year, redistribute the wealth to follow an ideal curve that optimizes both wealth and increments of wealth.

The latter is an interesting idea. Also since it does not need rigorous restructuring of society, something that would only be possible after a total collapse of civilization. While unavoidable in the system we have, it would be better to act pro-actively and do something before it happens. Moreover, since money is air – or worse, vacuum – there is actually nothing that is ‘taken away’. Money is just a right to consume and can thus be redistributed at will if there is a just cause to do so. In normal cases this euphemistic word ‘redistribution’ amounts to theft and undermines incentives for work and production and thus causes poverty. Yet, if it can be shown to actually increase incentives to work, and thus increase overall wealth, it would need no further justification.

We set out to calculate this idea. However, it turned out to give quite remarkable results. Basically, the optimal distribution is slavery. Let us present them here. Let’s look at the distribution of wealth. Figure below shows a curve of wealth per person, with the richest conventionally placed at the right and the poor on the left, to result in what is in mathematics called a monotonously-increasing function. This virtual country has 10 million inhabitants and a certain wealth that ranges from nearly nothing to millions, but it can easily be mapped to any country.

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Figure 1: Absolute wealth distribution function

As the overall wealth increases, it condenses over time at the right side of the curve. Left unchecked, the curve would become ever-more skew, ending eventually in a straight horizontal line at zero up to the last uttermost right point, where it shoots up to an astronomical value. The integral of the curve (total wealth/capital M) always increases, but it eventually goes to one person. Here it is intrinsically assumed that wealth, actually, is still connected to people and not, as it in fact is, becomes independent of people, becomes ‘capital’ autonomously by itself. If independent of people, this wealth can anyway be without any form of remorse whatsoever be confiscated and redistributed. Ergo, only the system where all the wealth is owned by people is needed to be studied.

A more interesting figure is the fractional distribution of wealth, with the normalized wealth w(x) plotted as a function of normalized population x (that thus runs from 0 to 1). Once again with the richest plotted on the right. See Figure below.

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Figure 2: Relative wealth distribution functions: ‘ideal communist’ (dotted line. constant distribution), ‘ideal capitalist’ (one person owns all, dashed line) and ‘ideal’ functions (work-incentive optimized, solid line).

Every person x in this figure feels an incentive to work harder, because it wants to overtake his/her right-side neighbor and move to the right on the curve. We can define an incentive i(x) for work for person x as the derivative of the curve, divided by the curve itself (a person will work harder proportional to the relative increase in wealth)

i(x) = dw(x)/dx/w(x) —– (1)

A ‘communistic’ (in the negative connotation) distribution is that everybody earns equally, that means that w(x) is constant, with the constant being one

‘ideal’ communist: w(x) = 1.

and nobody has an incentive to work, i(x) = 0 ∀ x. However, in a utopic capitalist world, as shown, the distribution is ‘all on a big pile’. This is what mathematicians call a delta-function

‘ideal’ capitalist: w(x) = δ(x − 1),

and once again, the incentive is zero for all people, i(x) = 0. If you work, or don’t work, you get nothing. Except one person who, working or not, gets everything.

Thus, there is somewhere an ‘ideal curve’ w(x) that optimizes the sum of incentives I defined as the integral of i(x) over x.

I = ∫01i(x)dx = ∫01(dw(x)/dx)/w(x) dx = ∫x=0x=1dw(x)/w(x) = ln[w(x)]|x=0x=1 —– (2)

Which function w is that? Boundary conditions are

1. The total wealth is normalized: The integral of w(x) over x from 0 to 1 is unity.

01w(x)dx = 1 —– (3)

2. Everybody has a at least a minimal income, defined as the survival minimum. (A concept that actually many societies implement). We can call this w0, defined as a percentage of the total wealth, to make the calculation easy (every year this parameter can be reevaluated, for instance when the total wealth increased, but not the minimum wealth needed to survive). Thus, w(0) = w0.

The curve also has an intrinsic parameter wmax. This represents the scale of the figure, and is the result of the other boundary conditions and therefore not really a parameter as such. The function basically has two parameters, minimal subsistence level w0 and skewness b.

As an example, we can try an exponentially-rising function with offset that starts by being forced to pass through the points (0, w0) and (1, wmax):

w(x) = w0 + (wmax − w0)(ebx −1)/(eb − 1) —– (4)

An example of such a function is given in the above Figure. To analytically determine which function is ideal is very complicated, but it can easily be simulated in a genetic algorithm way. In this, we start with a given distribution and make random mutations to it. If the total incentive for work goes up, we keep that new distribution. If not, we go back to the previous distribution.

The results are shown in the figure 3 below for a 30-person population, with w0 = 10% of average (w0 = 1/300 = 0.33%).

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Figure 3: Genetic algorithm results for the distribution of wealth (w) and incentive to work (i) in a liberal system where everybody only has money (wealth) as incentive. 

Depending on the starting distribution, the system winds up in different optima. If we start with a communistic distribution of figure 2, we wind up with a situation in which the distribution stays homogeneous ‘everybody equal’, with the exception of two people. A ‘slave’ earns the minimum wages and does nearly all the work, and a ‘party official’ that does not do much, but gets a large part of the wealth. Everybody else is equally poor (total incentive/production equal to 21), w = 1/30 = 10w0, with most people doing nothing, nor being encouraged to do anything. The other situation we find when we start with a random distribution or linear increasing distribution. The final situation is shown in situation 2 of the figure 3. It is equal to everybody getting minimum wealth, w0, except the ‘banker’ who gets 90% (270 times more than minimum), while nobody is doing anything, except, curiously, the penultimate person, which we can call the ‘wheedler’, for cajoling the banker into giving him money. The total wealth is higher (156), but the average person gets less, w0.

Note that this isn’t necessarily an evolution of the distribution of wealth over time. Instead, it is a final, stable, distribution calculated with an evolutionary (‘genetic’) algorithm. Moreover, this analysis can be made within a country, analyzing the distribution of wealth between people of the same country, as well as between countries.

We thus find that a liberal system, moreover one in which people are motivated by the relative wealth increase they might attain, winds up with most of the wealth accumulated by one person who not necessarily does any work. This is then consistent with the tendency of liberal capitalist societies to have indeed the capital and wealth accumulate in a single point, and consistent with Marx’s theories that predict it as well. A singularity of distribution of wealth is what you get in a liberal capitalist society where personal wealth is the only driving force of people. Which is ironic, in a way, because by going only for personal wealth, nobody gets any of it, except the big leader. It is a form of Prisoner’s Dilemma.

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