I see absolute poverty as persistent prolonged suffering
that could be alleviated by money if only it were in the
pocket. Absolute poverty is, probably, more the lack of
hope than the lack of money.
I never knew real poverty. My personal sufferings
could not be cured by money. They were caused by
conflicts, some of them internal, some with the
environment. Looking back at some later periods
of my adult life, I see that I certainly lived
in poverty by American standards, but not on the
average Russian scale. As a consequence of my
idealistic and bookish upbringing, I never had lust
for money in Russia; besides, being rich was something
shameful in the Soviet time, and not just because of
Communist propaganda. All my book heroes, mostly
explorers and scientists, were selfless and
idealistic. Only the crooks and thieves could be rich
because being rich was against the correct Soviet
order of things. The ruling class did not need much
money: it bartered goods for power.There was a
closed network of distribution of goods for the nomenclatura
(the privileged class).
I could do with little, I could be occasionally
wasteful, but it never occurred to me that making
money could be my personal life goal. Nevertheless, I
was always afraid of poverty as if it were a painful a
debilitating disease, which, I still suspect, it is.
To be poor in the absolute sense seems like a terrible
fate. Money feels to be the only working remedy
against a buildup of spiritual entropy and personal
decay caused by poverty, but this is a shallow
statement: a tautology. There are many other ways to
decay. Yet the power of money reaches farther than any
From the position of active humanism (which is the
work toward decreasing human suffering, see
Essay 29. On Goil and Evod), as much as
poverty is real and painful, it should be fought
against. This poverty is really a disease, even if the
poor people do not see it this way because everybody
around is poor. To raise people from poverty is like
to cure the sick. This is why, in my personal opinion,
treating poverty does not need any philosophical
This point of view can backfire, however. It seems
that poverty has always been regarded as natural as
accidental death, sudden illness, and aging. Judeo-Christian
ethics requires compassion to the poor. In
Christianity, Judaism and Islam it is explicitly
required to be active.
"For you always
have the poor with you, and whenever you will, you can
do good to them; but
you will not
always have me." (Mark, 14:7)
While the poor could still sing and dance, poverty was
an acceptable form of social life. At the opposite end
of the scale has been the idea that the poor deserved
their poverty, with which I find difficult to argue
because the term deserve, as well as justice
in general, have nothing to do with principles of
nature or logic.
There is an
eight-level gradation of acts of charity in Judaism.
The highest form is to put the poor on his own feet
and make him self-sufficient. The next level down is
when neither the giver nor the receiver know each
other, and the lowest is to give unwillingly. In
Islam, charity (zakat)
varies from voluntary to a kind of a government tax.In
Christianity, charity is simply among highest
brings the man closer to God. It seems that in
America, with its variety of denominations and
degrees of religious zeal, it can be a politicized
matter of choice.
Humanism is an
idea, and as any idea, if given a primacy over basic
human needs, it can lose its moral authority. Yet to
feel good is a basic human instinct, and some can feel
good by watching people who have not a single reason
to feel good. I do not see a contradiction, however,
between the millennia long glorification of violent
victory over the enemy and a very diverse stock of
ideas spanning from the religious duty of compassion
to modern liberal ideas and humanism. The instincts of
victory and superiority are basic, but they are still
instincts and not vital needs.
But is poverty natural? This touchy question is open
to investigation because we have observable measures
of wealth. Moreover, wealth itself is the only human
quality quantifiable with high accuracy. As I believe,
this is why it has been so popular as the ultimate
personal goal in modern number-crunching society where
nobody can dispute wealth but glory for one is shame
for another. For
a sceptic, what can you prove in this world but that
number 5 is more than 4?
As for any quantifiable property, the bell curves of
income and wealth distribution should have two wings:
a small number of people would be very poor, a small
number would be on the other side, and the majority
would crowd around the average (see Essay 16, On
Somebody Else). I reproduce it in Figure 31.1.
what happens with height, physical strength,
intelligence, health, and other human qualities. Same,
probably, applies to the ability of people to work,
earn money, and stay away from poverty. But this is
not so with income and wealth.
I got interested in the problem of reducing world
poverty, especially, in the United Nations program. I
became very skeptical after I had found some arguments
for the natural origin of poverty. I also found myself
in a good company of sceptics. But I also found
something to the contrary.
Suppose, 20% of the world population possess 80% of
world wealth, which is more or less close to the
actual state of things. The ratio 20-80 is known as
Pareto's law and was formulated in 1896 by Vilfredo
Pareto. It follows
from his simple
for distribution of wealth or income in society. In
its simplest and strictly qualitative form, it was
described in the New Testament:
to every one who has will more be given, and he will
have abundance; but
from him who
has not, even what he has will be taken away (
Matthew, 25: 29).
law fascinated me since my youth, when I had first
learned about it. Pareto's law describes a very
general and yet mysterious principle of human society.
There are various manifestations of this principle,
not at all related to money. Thus, according to Zipf's
law, a very small
number of words constitute a very large proportion of
texts (In English, the, of, and to are
the winners). There are other formulations and
applications of this general principle of uneven
(logarithmic) distribution, so different from the
normal bell curve distribution of physical properties
in nature where most property carriers are in the
middle range. In a society, most owners are in the
lower range and a few can own more than all the rest
chart is a cumulative distribution known as Lorenz
curve. The horizontal axis is percentage of population
and the vertical axis is the percentage of total
wealth/income it possesses. If it was distributed
equally between all members of society, then 10 % of
people would have 10% of property, 80% would have 80%,
etc., and the distribution would look exactly as the
diagonal. The actual unequal distribution, for
example, along Pareto's law, would look like the curve
that allocates 20% of the resource to 80% of owners,
and, therefore, 80% of the resource to 20% of owners .
coefficient is the ratio (fraction or percentage) of
the area A between the curve and diagonal to
the area below the diagonal, i.e., half the square. It
is a measure of deviation from the perfectly
egalitarian diagonal distribution with 80% of people
having 80% of wealth and 20% having 20% of it.
While Pareto's curve is calculated along an equation
with an only approximately defined constant (see APPENDIX A), the Lorentz
curve is empirical. It is difficult to compare them.
Nevertheless, the 20-80 rule corresponds to Gini
coefficient between 65 and 75. All such
measures, however, terribly simplify reality. There is
also a big difference between income and wealth. With
big wealth (cattle, bank account) one may have no need
of any income. On the other hand, inflation and
debt may annihilate big wealth and income.
Therefore, highly hypothetically speaking,
in order to double the income of 80% population, the
benefactor should find a source of income equal to
five times the amount of the current wealth: one
part for the poor and four parts for the rich.
We cannot be rich without super-rich, can we? If not, the
rich would gradually take away most of the surplus
given to the poor, not necessarily because of their
ill will but because of the Pareto's pressure.
This, of course, is a gross simplification. The
condition of people can be improved through
infrastructure, institutions, education, temporary
subsidies, vaccination, and one-time investments that
could not be appropriated by a small fraction of the
population. Education, for example, is something that
cannot be taken away (it can by discrimination,
however). This is what the UN anti-poverty projects
intend. They are institutionalized as banks
(World Bank and IMF) and I find it hard to believe
that any bank can be an institution of philanthropy.
But this is all politics (i.e., the realm of who deserves
what) while I am interested in the nature of things.
All I can say is that to just loan money to poor
countries to fight poverty as their governments
consider appropriate seems both immoral and
This Essay may be an ignorant speculation, but it is
based on some available knowledge. My conclusion is
that in order to give more to the poor without giving
more to the rich, one has to spend significant
additional money for keeping the society from
following the Pareto's curve. In other words, the
benefactor has to enslave (control is a milder
term) the beneficiaries. The one who pays orders the
This experiment has been conducted on a
totalitarian scale in Communist countries. The Russian
Gini jumped from 25 to 40-45 after the dismantling of
Communism. It plunged in Cuba after the advent of
Castro because the rich left the island.
One can find if not a wealth of money than wealth of
data in the truly amazing database
World Institute for Development Economic Research
(WIDER) that evaluates world income inequality in terms
of Gini coefficient, country by country. The data were
collected in different ways and from different segments
of population, and they are often contradictory.
page of Goetz
Kluge presents various measures of inequality. on
world income inequality.
Inequality in the USA and world has become one of the
problems, as I anticipated around
2000. There is a lot of new materials on the Web,
as well as many well-intended books.
The WIDER database (1.6 MB in Excel format) contains
5068 entries. The maximal Gini coefficient per household
is 79.5 for Zambia in 1970 and the minimal Gini was 12.1
for urban China in 1982. It may seem that Zambia was the
epitome of capitalist exploitation and China a paramount
of egalitarian democracy.
Many Communist countries had Gini below 20 at various
times: Hungary in 1996 and 1997, China for many
years, Slovak Republic around 1990, Romania in
1989. Many had Gini slightly over 20 before the
collapse of Communism. The pool of egalitarian
societies included also Sweden in 1980-1983 and rural
Pakistan in 1970, although no two countries seemed to
be farther apart in all aspects. Overall, Pakistan had
Gini around 35, as if it were a West European country.
Finland in 1988-1991 had Gini in the lower 20's, but,
with a different methodology, between 40 and 50
Most developed countries were in the lower 30's:
France, Canada, Italy, Japan, Norway, Spain. So was
Germany, but according to one source, its Gini was
between 18 an 20 in 1990-91.
Greece had Gini of 40, and USA, with its Gini of
35-45, was in the same fortyish category as Greece.
Most inequality could be found in poor countries, and
this is where metodologies agree:
Gini over 50: Mexico and Philippines in 1960's,
Malaysia in 1973, Kenya in the 90's,
Costa Rica in 1989-95. Gabon in 1960,
Sierra Leone in 1968, and Brazil in 1995 had Gini
around 60. Gini of 70 (for one exception) was not
observed and Gini over 60 is extremely rare.
I am forced to come to the conclusion that:
If Pareto's law is in the nature of things, then there
seems to be a disturbing problem in the UN projects of
In order to decrease inequality, the existing social
order has to be changed.
And that was exactly the idea of Marx and the entire
tree of thought that grew from it, from Communism to
the West European Socialism. From what I know about Karl Marx, he and his
family knew poverty too well. It is only the power of
government, not necessarily, oppressive, that
alleviates the Pareto pressure.
In an attempt to improve the fate of the poor, without
taking anything from anybody and without changing the
social order, most of the expenses will go to the rich
and the rest to the poor, not to mention the money to
maintain the staff for all that.
The first ("rich") component of the expenses can be
decreased if the social order is changed, but the
change would cost, probably, the same money as should
be otherwise given to the rich.
(2016) What can happen if inequality is unstoppable?
See the highly relevant this ,
striking chart of Income Rebellion
Index up to 2000, which clearly predicts the Primaries
of inequality is history of social
earthquakes, which may not even need organization.
between poverty and better conditions coming from a
benefactor involves the choice between freedom and
dependence. Only the free society, however, can have
The best anti-poverty investment, therefore, seems to
be the investment in democratic socialism. With
democracy, however, we are getting into a giant swamp
of politics, which is today the art of buying and
selling democracy, see newspapers and TV. Democracy is
an expensive and fragile luxury. In a poor
globalized world, democracy will be under
destabilizing pressure of regions with more poverty. I
believe, this is one of probable causes of the
anti-Western reaction in the world, represented by
China, Russia, and militant Islam. As we saw from
examples of Sweden and rural Pakistan, the equality of
income does not necessarily prevent poverty.
I think that it is not “normal” natural inequality and
not even poverty by Western standards that should be
fought, but suffering, regardless of its origin.
Concentrated wealth is the power of nations.
Throughout history, the way I see it, constructive
efforts have always been driven by concentrated
wealth, not by the divided one. The government can
govern because it taxes the masses. It is because of
the concentration of wealth in the hands of the rich,
including rich government, that society can make
general progress, develop new institutions, services,
and art, and become more liberal. It is crucial for
the technological progress even if we frown upon it.
Vilfredo Pareto was an arch-enemy of Marxism. No
wonder: his law has been the strongest argument
against expropriation of expropriators. Concentration
of property is as natural as relative poverty. There
is nothing natural, however, in absolute poverty in
modern society. To accept absolute poverty is as
shameful as accept public execution and torture (see Essay
32: On the Split).
Wealth is not immoral but poverty is.
Loss of freedom is a side effect of loss of poverty.
is much outdated. I return to the problem of
The Few and the Many.
In the Course, his [Pareto's] main economic
contributions was his exposition of "Pareto's Law" of
income distribution. He argued that in all
countries and times, the distribution of income and
wealth follows a regular logarithmic pattern that can
be captured by the formula:
log N = log A + m log x
B. I could not find an
established explanation of Pareto's principle. Any
explanation should at least consider two distant
examples: language and society. I explain
it for myself in the following non-professional
1. Biological life is competition for limited
resource. Human society creates surplus resource that
can be stashed away from immediate consumption and
used for production and maintaining social order. The
material surplus can be as much a carrier of social
work as electricity a carrier of mechanical one. An
animal uses brute force for dominating other animals.
A human uses food, Things, other humans, and money as
an equivalent of all of the above, for the same
purpose. This seems to be a Marxist view of society:
the driving force of social mechanics is surplus that
cannot be eaten on the spot.
Society is never in equilibrium: this is why history
2. Pareto's distribution can be perceived as a grossly
deformed normal distribution. If normal distribution
exemplifies chaos, Pareto's distribution points to a
strong order. The deformation is possible because
concentration of money in one hand provides enough
energy to take money—one by one—from those who have
little and cannot resist. This "one by one" is very
important: energy can be invested, returned, and
reinvested, which is in a sharp contrast with its
deterioration and dissipation in the physical world.
It happens until an equilibrium establishes. In other
words, the rich can hire and army and the poor
cannot. Moreover, the rich can hire a government
or simply be it.
3. The resistance of the majority to the inequality is
decreased because they have a kind of reward from the
rich who offer protection, stability, and other
benefits, real or fictional. In other words, the
inequality is a social contract: you can grow bloody
rich, but give me a job.
4. In the end, Pareto distribution is the result of
clustering: like modifiers cluster around meaningful
words, which results in the Zipf's distribution,
members of society are not independent and cluster
around the leaders and employers of all kinds. There
is a small number of large cities because people
gravitate to large cities. There is a small number of
large fortunes because money sticks to money and
people to stability. There is a small number of large
companies because small companies are eager to sell
themselves to large companies. The Pareto pressure is
a result of hierarchy of domination. Or, to put it
differently, it is the result of dependence, so
different from the physical world with the statistics
based on independent events. The total of wealth and
income is more or less constant over short periods of
time and individual values depend on each other: a
case of competition for a limited resource. On the
contrary, IQ and height of a man do not depend on IQ
and height of any other unrelated man.
5. If we consider just the general shape, not exactly
the plot of a mathematical function, we can see that
Pareto distribution looks like a cutout from a wing of
normal distribution, which means that there is
anything but a random process behind the former.
31.3 I compare them as four graphs. Probability
density shows the chances (vertical axis) that a
random sample will have the property value on the
horizontal axis. Property can be, for example,
height, wealth, income, number of publications, total
number of sexual partners (a few Casanovas and Don
Giovannis have most victories), etc. Samples are
humans selected at random. Probability
distribution shows the chances (vertical axis)
that a random sample will have the value between zero
and the value on the horizontal axis.
This is what the plots tell us when we move along the
curve from left to right.
Curve 1. Very few
samples have the property very much below the average,
most have the property close to average.
Curve 2. The number of
samples with a very low property is very low, the same
true about high values; the
middle, however, is very egalitarian, it is almost
straight, like the egalitarian diagonal in Figure
2. Note, that the high end cutout from Curve 1
starts from the lowest values in Curve 2.
Curve 3. The
number of samples with low values of property is very
large, but all the large values belong to very few
Curve 4. The number of
samples quickly grows when the value is low, but only
a small fraction of samples falls into the region of
high values. This curve looks different form the
cumulative curve in Figure 31.2 (it is Figure 31.2
flipped over the diagonal) , but has the same meaning.
Curve 4 reads: the probability that somebody selected
at random will be in the lower value range grows fast,
but slows down in the high range.
Note, that the high end "cutout" form Curve 3 starts
from the lowest values in Curve 4.
A situation is not Pareto-optimal, then, if you can make
someone better off without making anyone else worse off.
My view is that the world philanthropists, probably,
want distribution to be ethical, and, therefore, not
Pareto-optimal. This is possible, however, only if a
certain order of material distribution (i.e., of
wealth and income) is imposed on a country. An
example of an efficient, internal, and
Pareto-optimal imposition of this kind is land reform.
Myth: The World Bank and the IMF exercise absolute power
over the economic policies of developing countries.
Fact: In general, governments of poor countries, like
governments of rich countries, only adopt policies to
which they are committed as a result of domestic
politics and circumstances. The World Bank and the IMF
have required dozens of poor-country governments to make
“structural adjustments” such as privatizing state
companies and cutting spending, in return for loans. Yet
borrowers have for the most part only implemented
measures they would have taken anyway, such as cutting
spending in order to repay debt. A new World Bank survey
of ten African nations found that only two, Ghana and
Uganda, had made and stuck to the reforms demanded
of them. (pp. 38–39)
Therefore, the creditors want social changes but do
not have armies and budget to enforce them.
"Most of the
poverty and misery in the world today is due to bad
repressive or corrupt or simply incompetent regimes and
failed states," George
This is something one does not need any mathematics to
notice. What Soros actually criticized was the use of
foreign aid by the US Government for geopolitical
reasons. The UN World Bank argues that poverty should be
fought across the national borders in order to prevent
the hostility and revolt of the poor against the rich—a
typical geopolitical reason. Much
more on Business Week site.
F. After this page had been published, I
found a reference to the book by William Easterly: The
Elusive Quest for Growth: Economist's Adventures and
Misadventures in the Tropics. The MIT Press,
2001. Judging by the review in The New Yorker,
March 18, 2001, it confirms my conclusions, which are,
most probably, not new. G. An
interesting econophysical analysis of money as analog
of energy gives a non-Pareto
(Boltzmann-Gibbs) distribution of
probability of owned money with the same general shape,
plus other interesting for a specialist ideas. Exchange
of money is regarded as similar to exchange of energy in
molecular collisions. The closest analogy is a society
of gamblers. This model does not take to account
the ability of money to grow on the flow of energy and
dissipate, as it would be in life-like non-equilibrium
models, but the results are very realistic. The autors
acknowledge the limitations of equilibrium models but
justly regard them as valid approximation.
In fact, the actual distribution of income (A. Dragulescu, V.M. Yakovenko. Evidence for
the exponential distribution of income in the USA. The
European Physical Journal B, 20, 585-589 (2001); can
be found at: Yakovenko)
is just the normal shape very much skewed to the left (Figure
31.4). Figure 31.4
This seems to confirm my thesis that social
order is measured by the distortion of the normal
distribution. Egalitarian and Pareto distributions are
two extreme examples. It would be interesting to find
data on the food consumption of feeding animals in a
groop. It might be represented by the weight
distribution of grazing animals, for example. I bet it
is normal: animals do not have either capitalism or
communism. The quantitative economics of tribal
societies is also interesting.