Discussions of unequal distributions are present in most evening news segments. Calls against income inequality and wealth inequality often dominate political discussions, especially as we prepare for the upcoming election cycle. Oftentimes, there is an assumption that capitalism is the system that produces such stark differences in distribution. However, this is not the case.
Price’s Law states that the square root of a given population produces 50% of the total production.
The model does not prove nearly as profound in smaller populations as it does in larger populations. For example, if 10 bricks are produced in a group of 10 bricklayers, roughly 3 bricklayers (square root of 10 is 3.16) would produce 5 bricks. However, when 10,000 bricks are produced in a group of 10,000 bricklayers, 100 bricklayers (square root of 10,000 is 100) would produce 5,000 bricks.
Companies looking to hire more workers ought to grapple with the model when considering to hire new workers. As companies grow, incompetency grows exponentially. That is, the growth of incompetent workers is exponential while the growth of exceptional workers is linear. Meaning, as a population grows in size, the growth in the number of incompetent workers will outpace the growth in the number of competent workers.
This model has tremendous implications for the real world. The number of books sold in a year are written by a small minority of authors. The number of views on YouTube videos follows the same pattern. The classical music played today is written by a select few composers. Indeed, differences in income can also be modeled using Price’s Law.
Advocates for redistributing wealth and/or income in order to “level the playing field” insist that their efforts will make the economic system more “fair.” Yet, Price’s Law suggests that a select few players in any domain will produce significantly more than the rest of the population. The specific occupants of the top producing section may change, but the distribution pattern would persist.
The only way to ensure a “level field” over a long period of time is with centralized power and control over production and consumption. This control would be widespread and thorough. After all, it would have to counteract the natural distributions as described within Price’s Law. Would we not want to have any economic incentive for our country’s top producers to continue their tremendous production patterns? I suspect other populations would enjoy sharing an economy with the top producers in the United States. If these top producers continue to be ostracized despite their economic and social contributions, this outcome may become true.
Sources:
https://dariusforoux.com/prices-law/