Vilfredo Pareto and the Circulation of Elites

Written by Paul Marotta of Corporate Law Group, California, on October 3rd, 2016.

vilfredo-paretoAs an entrepreneur you may be, as one person put it, “working harder than anyone else is willing to work,” so that you can, “live as no one else is able to live.” You may be trying to break into the 1%. The club inhabited by Bill Gates, Warren Buffet, and Mark Zuckerberg. Well, a bit of bad news about that. An economist who died in 1923 had a theory about that which he called the “Circulation of Elites,” a leveling process.

Ludwig Lachtman described it in The Market Economy and the Distribution of Wealth, as follows: “Wealth is unlikely to stay for long in the same hands. It passes from hand to hand as unforeseen change confers value, now on this, now on that specific resource, engendering capital gains and losses. The owners of wealth, we might say with Schumpeter, are like the guests at a hotel or the passengers in a train. They are always there but are never for long the same people.”

In other words the elites of today will not be the elites of tomorrow. If the economy is allowed to do its job; if businesses are not protected and bailed out when they make horrible mistakes, the 1% will cycle. If disruption is allowed, society wins and many 1 percenters lose. That’s OK. That’s how it is supposed to be. Both Marx and Schumpeter thought that this was a flaw of capitalism, but it is capitalism’s beauty. When innovation is rewarded by the market we get more innovation.

Years ago there was a gathering of the ancestors of Andrew Carnegie, possibly the wealthiest person to ever have lived. There were hundreds of people. Not a single one of them was a millionaire. The Carnegie Corporation manages an endowment of $3 billion. It has over 20 Trustees. Not a single one is named Carnegie.

Pity the 1%; the only certainty is that they will join the rest of us eventually. The important thing is that the fluidity in and out of the 1% is unimpeded. Every time anyone is bailed out or gets government funding or regulatory protection, the 1% is protected and we are all harmed. Let the market do its job. Let the elites circulate.

Written by Paul Marotta of Corporate Law Group, California, on October 3rd, 2016.


The information contained in this post is current at the date of editing – 19 June 2023.

Our Great Lawyer Guarantee

We want to be part of your team over the long term. We'll achieve this by sticking closely to the following principles:

  • We'll listen carefully to understand what you want to achieve. Then we'll thoroughly explain our advice and step you through the documents. You can be sure you'll know the full consequences.
  • Our lawyers work as a team, so someone will always be available to answer your questions, or point you in the right direction. You will also benefit from a range of perspectives and experience.
  • One of our key goals is to pass on as much knowledge as we can, so you can make your own informed decisions. We want to make you truly independent.
  • We only do what we're good at. You can be confident that we know what we're doing and won't pass on the cost of our learning.
  • For advice and documents, we provide a fixed or capped quote so you don’t take price risk. If you're in a dispute, we'll map out the process and costs so you know what to expect.
  • We're not in this game for our egos. We're in it for a front row seat to witness your success.

We measure our success on how efficiently we have facilitated your objectives, enhanced your relationships, and reduced the level of stress for all involved.

If we sound like people you can work with, call us now on 1300 654 590 and speak directly with a great lawyer.

Breaking the law en masse is not innovative or disruptive. It’s cheating.

Breaking the law en masse is not innovative or disruptive. It’s cheating.

If you had sat me down 5-10 years ago and asked me the top 5 things I would like to change about the taxi industry, within about 20 minutes of brainstorming I would have nailed all 5 of the ‘innovations’ that Uber has implemented. It’s all the rage to bag Uber right now, and that is not my point. I am bagging the people who think that Uber was innovative, or disruptive. Uber, as a business model, was simply to break the law en masse. Plain and simple.

read more
How ‘diverse’ are you, really?

How ‘diverse’ are you, really?

Advocating for diversity makes sense for a minority view trying to get a foothold or survive in a sea of opposition. Diversity and tolerance protect the little guy. But once a foothold is established for our idea, we tend to become a lot less tolerant and accepting of true diversity of opinion on the issue.

read more
Our top legal issues to look out for in 2023

Our top legal issues to look out for in 2023

It feels like an unbelievably short time has passed since we last summarised the top legal issues you would be facing in 2022. As another year zooms into focus you may be curious about what we think has changed since the last time we shared our thoughts. Interested? Read on. 

read more