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Why are Rich People Rich?

Updated: Sep 4, 2021

In the distant past, the rich and powerful tended to picture themselves as divine figures, with otherworldly abilities that no ordinary civilians could have. History is peppered with examples. Saint Edward the Confessor, King of England in the early 11th century, was said to be able to cure people by simply touching them. Of course, it would not be surprising to find out that the true King Edward might be just like the civilians he ruled. However, these myths were presented in such an authoritative and factual way that ordinary people took them as given. As monarchs claimed to be the closest to God, for most of their citizens it seemed naturally justifiable for them to have such power and riches.

Post-Enlightenment, the upper-class no longer has these mythological stories to justify having so much wealth. But replacing these myths with hard facts can be difficult. For instance, many argue that it is intelligence that makes rich people rich. In fact, evidence tends to point to the contrary. Economist Paul Krugman argues that better-educated people do not necessarily earn more. His view is backed by the research I cited in my last article, showing that the return on higher education is disproportionate to the time and money invested in the first place, resulting in a high opportunity cost of higher education.

Apart from intelligence is diligence, with arguments saying that rich people are more hard-working, striving to get to the top. This argument may have some truth to it. Research from Mark Aguiar and Erik Hurst illustrates that the working time for upper-income professionals has surpassed that of lower-income ones in recent years. However, it difficult to determine whether rich people happen to work harder, or being hardworking helps you become rich. Richer people may also be better able to rely on assets such as property to provide a steady flow of income. Not only that, the value of assets themselves can rise over the years, generating even greater income. In this sense, rich people may be able to rely solely on these assets, so that it is not necessary for them to work.

Unlike in the past, where authoritative myths dictated citizens’ opinions, there is not a widespread consensus as to why rich people are rich in the modern era, and it has become increasingly common to challenge the wealthy. It remains to be seen whether these challenges will be successful.

Junzhao Shi


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