IV. In a further stage we should cease to take the wealth
distribution as given, and instead treat wealth and
income as Joint variables in a process evolving over
the generations. Propensity to save and rate of return
would be the double link between the two random
variables.
We shall not further refer to this last stage in the
following paper, but shall try to fill some of the
empty space of stage III.
Property income
We shall distinguish property income and earned income
and deal with the case of property income first, because
it is simpler than the general case.
Instead of the matrix of income transitions used by
Champernowne we have to imagine an analogous matrix
Wealth-Income which shows for each amount of wealth
the probability of different incomes.
The basis of the analysis is thus the conditional dis
tribution of income, given the wealth. Economically
speaking this is the probability of a certain rate of
return to wealth or profit rate. Prom this we can derive
the distribution of income, provided we know the distribu
tion of wealth. But the distribution of wealth is known:
It follows the Pareto law (over a fairly wide range) and
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