Full text: The Personal Distribution of Income

TV. In a further stage we should cease to take the wealths distribution 
as given and instead treat wealth and inc me as joint variables 
in a process evolving over ±±m* the generations. We should continue 
to regardthe influence of slwwly accumulating wealth and other stocks 
on the current income as a dominant feature of the pr cess but, 
trying to ineludethe preceding history of accumulation, we should 
n w also recognise that in the course of time the income acts on the 
wealth? not only in so far as it arises from we 1th as a return and 
is (partly) re-inve ted, but also insofar as new wealth is formed 
from earned income in favorable circumstances and after a lapse of 
time required for accumulation. 
That means that income and wealth are linked by two kinds 
of relations«One is the rate of return which links the current income 
of property owners to their wealth, the other is the relation 
between (unearned and) earned income of the past to the accumulation 
of new wealth, in otherwords, the propensity to save, In so far 
as the past incone is in practice fairly strongly correlated with 
resent income, the present earned income appears to have an effect 
on the wealth which corresponds to the savings relation. 
The influence of wealth m income via hhe rate of r turn 
is the subject to be treated first over the next few pages 
The dependence of income on wealth 
I the following we shall consider inc me as flowing from 
wen th. This applies sirictly to what we call unearned inc me. 
The reader nay think of that in he first place but h e has to be 
prepared fra m re far reaching and wider interpretation later on} 
in fact, in pratice we cahnot asiiy separate unearned and earned 
income and the difficulty is perhaps greater than one that could be 
vercome by adequate data ( especially in the case of unincorporated 
business ). 
Instea of the matrix of income transitions used by 
Champemowne we have to imagine an analogous matrix Wealth-Income 
whiehshows for each amount of wealth the probability of differ >t 
I’he basis of the analysis is thud the conditional distribution 
of income, given the wealth. Economically speak ng t is is the 
probata ity of a certain rate of return to wealth or profit rate. 
Prom this, if we know it, we can derive t&e distribution of income ^

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