Jeremy Abroad

Capitalism Naturally Trends Towards Increasing Wealth Concentration

December 01, 2018

The natural trend of capitalism is towards ever-increasing wealth concentration and oligopoly/monopoly. This is an inherent characteristic of capitalism. Short of government interference (redistribution of wealth, breaking monopolies), this is as mathematically certain as the fact that the limit of n as n approaches infinity is infinity.

This is because the more money you have, the easier it is to make even more money (eg. investments, passive income).

For example, if you have $10m in an index fund that tracks the stock market, a conservative 4% annual return means making $400k/year without doing any actual work.

It follows by this premise alone that as time goes on, society will naturally trend towards ever-increasing concentration of wealth. Money naturally funnels up to the owner class, and the economy becomes catered to the wealthy.

Businesses

This applies not only to individuals/houses, but also to businesses. Businesses also trend towards increasing market concentration (ie. fewer and bigger firms) and eventually oligopoly/monopoly through merges and acquisitions. Again, government interference in breaking down monopolies is the only mechanism that would prevent this.

This has been the case for nearly every sector of the economy.

For example in 1978, 10 airlines accounted for 90% of domestic flights in the U.S. Today, 4 airlines account for 80%. The same pattern has also been witnessed in telecommunications, retail (eg. WalMart), ecommerce (Amazon), pharmaceuticals, finance, tech, marketing, agriculture, radio (iHeartRadio), etc.

In the tech industry, every new innovative startup seems to get acquired by Google (Android, Youtube, DeepMind, Nest, Firebase), Facebook (Instagram, Whatsapp, Oculus), Microsoft (Skype, GitHub), Amazon (Audible, Twitch, Zappos, Imdb), or Apple (Shazam).

One side effect of increasing market concentration is that it increases bargaining power of the monopoly/oligopoly, creating monopsony over laborers and keeping down wages.

Wealthy people disproportionally own these businesses. 10% of the population owns 84% of the stock market, and private equity is inaccessible to investors without substantial money to invest.

As a result, there is a symbiotic relationship between increasing monopoly/oligopoly and increasing wealth concentration.


As wealth concentrates and businesses consolidate, power is concentrated in a small ownership class. The economy becomes more and more catered to the wealthy while the rest are sidelined (eg. like homeless people who are invisible to the economy because serving them is unprofitable).

An example of this is how every new residential building development in NYC is a luxury tower catered to millionaires/billionaires. There’s just more profit in serving people with a lot of money.


Jeremy Bernier

Written by Jeremy Bernier who left the NYC rat race to travel the world, work remotely, and find the meaning of life.