How Do the Richest 1% Own 50% of Wealth?

In this chapter shows a theoretical possibility for the fact that the richest 1% of the world’s population owns almost half of the world’s wealth. It does seem that inequality will be enlarged in the near future in tandem with rapid economic globalization. There is a need-to-know determinants of inequality and dynamics of inequality. Surprisingly, theoretical economics still has little to say about determinants and dynamics of economic growth and inequality. The mainstream of modern theoretical economics has failed in providing a proper analytical framework to analyze relations between growth and inequality. Without a proper analytical framework, economics can hardly analyze the complicated dynamic issues with nonlinear interactions among many variables over time. The chapter is especially interested in the phenomenon of contemporary free-market economies where the richest 1% of the population own more than half of wealth. By comparative dynamic analysis it is demonstrated that inequalities will not be shrunk but will be enlarged in free-market economies with rapid technological changes and connected markets. In order to analyze these issues, this chapter introduces endogenous human capital and human capital externalities into the general equilibrium theory with heterogeneous households and endogenous wealth. This chapter develops the neoclassical growth model with heterogeneous households and examines the dynamics of the economic system and its properties. It shows the effects of changes in the rich’s efficiency in accumulating human capital, the rich’s propensity to save, the rich’s propensity to consume, the rich’s propensity to enjoy leisure rises, the total factor productivity of the capital goods sector, and the rich’s learning through consumption.