Full text: Income Distribution: Line of Reasoning (Fassung 1)

The new men also ±hx tend to have wealth - simply because their 
large in come enable them to save a lot. However, their wealth is 
not the source of their income and ist will in genral be 
small as comparedwith the wealth they would have to have in 
order to get from it alsone the income they actually have. 
In order to take account of these relations we should have 
to work out a process in wealth and income, with allthe 
feed-backs between the two. 
One might- purely formally- calculate a ficticious capital 
resulting from the application of the return rate on real wealth 
to the income of the manager. Then formally all income would 
be shown as a return o/waalth. The proportion of real wealth in 
the total would be the lower the newer the men would be. 
H.Simon gives an explanation of the earnings of managers 
which is based on the hierarchy , measured by scale of 
operations, and on the relation between the grade and the 
payment; there are again two exponential ( on the face of it 
geometri®al)distributions involved. The theory might be 
generalised to apply to stars, specialists. T here i s one 
fault iiy^t: It is not a model of a ^Process, ressembliig in this 
the theories of Roy etc. To be satisfactory, the hierarchy 
of payments would have to be shown to evolve from a historical 
process which continues. 
See H.Simon, The compensation of Executives. Sociometry 1957* 
based on empirical investigations by ^.R. Roberts, 
A general theory of executive compensation based on 
statistically tested propositions. Qu.J.E.1956 
Bases of a historic#®^- explanation would be that the 
scale of operations increases in time, or rather that there is 
a diffusion of the schale of operations in the course of time. 
Diffusion over the space of income payments. 
Reason for the diff ustbon is simply the grov/ing complexity of 
the economic system. 
Before the modern developments we have already basiclally the 
same pattern in the classical division of labur which 
increased the market of the producer (craftsmen) and created 
income differentials. 
ThB payments hierarchy is full of irrational factors 
and to be explained by sociological factors, as Simon rightly argues. 
(Think of the engineers in Austria !

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