7
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
ncomes.
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 ^