The Pareto Problem and Capitalism

Recently there has been much discussion of the Pareto principle of Vilfredo Pareto and wealth distribution. It has some basis in probability, chance and effort. Jordan Peterson in particular is someone who has brought this to the forefront lately. I don’t ascribe positive or negative to his view points, just to the base arguments of capitalism in this framework.

Where there are chance processes, there is a uneven outcome distribution. A explanation by Peterson can be found:

The fundamental problem I have with the model is that the risk/chance processes referenced in capitalism are typically found in a macro economics sense. In large economies, involving financial chance, institutions are where we are seeing most of the wealth formation problems.

In the scenario Peterson references, the chance is comprised of people risking inside a social construct of trading by winning and losing a dollar. They put their dollar in with risk being built into the construct to play.

Is this really capitalism or just gambling on a macro economic scale?
When I think of capitalism it involves individuals trading equivalent subjective values of services or products. The chance probabilities are virtually zero, as that is not a win or a lose, its trading one thing for another. Only when you inject the social constructs of social risk markets and social financial risks that we start seeing the chance processes become apparent.

The key factor in production is that there is capital formation of some type. In chance operations taking place around capital, there is no capital formation in the risk itself. It is a gamble, and as Peterson so well illustrated, the results of gambling become about winners and losers.

He states, “People start to stack up at zero.” This is not an economic principle. It is a gambling principle. It doesn’t take a genius or population of super high IQ people to adopt the position of not gambling in capitalism.