Wealth condensation occurs when new wealth ends up in the hands of the already wealthy due to their ability to invest more. Advocates argue investors should receive most benefits, while opponents claim the system disproportionately rewards those in favorable positions. Investment opportunities are often unavailable to the poor, widening the wealth gap. Supporters defend wealth condensation as natural, while opponents criticize the economic and political systems as contributors.
Wealth condensation is the tendency of newly created wealth to end up in the hands of those who are already wealthy. This is because richer citizens tend to have more money available to invest in wealth creation opportunities than poorer people. Wealth condensation is a phenomenon that occurs in all free market economies. Advocates of wealth condensing argue that investors are responsible for creating new wealth and therefore should receive most of the benefits. Opponents argue that the system tends to disproportionately reward those already in favorable positions.
In capitalist societies, individuals with extra money can lend that money to others and charge interest. This occurs in a wide variety of scenarios: deposits into bank accounts, government bonds, and stocks are all ways of lending money temporarily to other people while we wait to get the money back plus interest. Some forms of investment have greater risk, but also the potential for greater returns. For example, in the stock market, an investor might invest heavily in a start-up company because he speculates that it will grow quickly. If the company succeeds, the investor will reap hefty profits.
Some forms of investment, such as savings accounts and government bonds, are virtually risk-free. Although the interest rate is generally low, if it is higher than the inflation rate, it will result in an increase in wealth. For investors to make money, they must have cash available to invest in the first place. Poor people often have little or no money left over after meeting their basic expenses for housing, food, and medical care. Without the opportunity to invest, the poor miss out on investment rewards.
The condensation of wealth is defended as natural and efficient by some. They argue that while the gap between rich and poor may widen, the poor are still better off than they would be without a free market economy. In other words, the standard of living of the poor is increasing in absolute terms – a phenomenon possible when the total amount of wealth is increasing. Advocates say that the poor in many capitalist nations, particularly the United States, are better off than the vast majority of people in human history. Furthermore, they claim that the middle class of many modern nations lives below the standard of living of the American, European and East Asian poor.
Opponents of wealth condensation, on the other hand, often contrast the performance of CEOs and their lower-level workers. CEOs often earn hundreds of times the income of lower workers with them – this is a critique of the economic system itself as a contributor to wealth condensation. Opponents also claim that the rich are better able to hold government positions and influence politicians to their advantage. This is a critique of the political system as a contributor to wealth condensation.
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