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On the Rise and Fall of Class Societies

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  • Kiminori Matsuyama

Abstract

This paper develops a theoretical framework to understand mechanisms behind the rise and fall of class societies. The dynamics is described by the joint evolution of the wage rate, the vertical division of labor between employers and workers, and the distribution of household wealth. The model is simple enough to allow for a complete characterization of the steady states. For some parameter values, the model predicts the rise of class societies, where the households are permanently separated into the two classes in any steady state. The rich bourgeoisie maintain a high level of wealth due to the presence of the poor proletariat, which has no choice but to work at a wage rate strictly lower than the "fair" value of labor. For other parameter values, the model predicts the fall of class societies, where job creation by the rich employers pushes up the wage rate so much that the workers will escape from the poverty and eventually catch up with the rich. Thus, the wealth created by the rich trickles down to the poor, and, in the steady state, the inequality disappears. As an application, this framework is used to study the effects of self-employment, which provides the poor with an alternative to working for the rich, and at the same time, provides the rich with an alternative to the job creating investment, which could benefit the poor.
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  • Kiminori Matsuyama, 2001. "On the Rise and Fall of Class Societies," Discussion Papers 1326, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  • Handle: RePEc:nwu:cmsems:1326
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    1. Holtz-Eakin, Douglas & Joulfaian, David & Rosen, Harvey S, 1994. "Sticking It Out: Entrepreneurial Survival and Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 102(1), pages 53-75, February.
    2. Kiminori Matsuyama, 2000. "Endogenous Inequality," Review of Economic Studies, Oxford University Press, vol. 67(4), pages 743-759.
    3. Banerjee, Abhijit V & Newman, Andrew F, 1993. "Occupational Choice and the Process of Development," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 274-298, April.
    4. Freeman, Scott, 1996. "Equilibrium Income Inequality among Identical Agents," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 1047-1064, October.
    5. Philippe Aghion & Patrick Bolton, 1997. "A Theory of Trickle-Down Growth and Development," Review of Economic Studies, Oxford University Press, vol. 64(2), pages 151-172.
    6. Roland Bénabou, 1996. "Inequality and Growth," NBER Chapters,in: NBER Macroeconomics Annual 1996, Volume 11, pages 11-92 National Bureau of Economic Research, Inc.
    7. Thomas Piketty, 1997. "The Dynamics of the Wealth Distribution and the Interest Rate with Credit Rationing," Review of Economic Studies, Oxford University Press, vol. 64(2), pages 173-189.
    8. Kiminori Matsuyama, 2000. "Financial Market Globalization and Endogenous Inequality of Nations," Discussion Papers 1300, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    9. Altonji, Joseph G & Hayashi, Fumio & Kotlikoff, Laurence J, 1997. "Parental Altruism and Inter Vivos Transfers: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 105(6), pages 1121-1166, December.
    10. Xavier Freixas & Jean-Charles Rochet, 1997. "Microeconomics of Banking," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061937, January.
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    Cited by:

    1. Manuel Oechslin, 2009. "Creditor protection and the dynamics of the distribution in oligarchic societies," Journal of Economic Growth, Springer, vol. 14(4), pages 313-344, December.
    2. Kiminori Matsuyama, 2000. "Financial Market Globalization and Endogenous Inequality of Nations," Discussion Papers 1300, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    3. Doepke, Matthias & Zilibotti, Fabrizio, 2005. "Patience Capital and the Demise of the Aristocracy," Seminar Papers 735, Stockholm University, Institute for International Economic Studies.
    4. Falilou Fall, 2005. "Endogenous persistent inequality," Cahiers de la Maison des Sciences Economiques v05059, Université Panthéon-Sorbonne (Paris 1).
    5. Matsuyama, Kiminori, 2013. "The good, the bad, and the ugly: An inquiry into the causes and nature of credit cycles," Theoretical Economics, Econometric Society, vol. 8(3), September.
    6. Kiminori Matsuyama, 2005. "Credit Market Imperfections and Patterns of International Trade and Capital Flows," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 714-723, 04/05.
    7. Dilip Mookherjee & debraj Ray, 2005. "Occupational Diversity and Endogenous Inequality," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series dp-142, Boston University - Department of Economics.

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