The Origin of Wealth: The Radical Remaking of Economics and What it Means for Business and Society

by Eric D. Beinhocker

In addition to developing the concept of Pareto optimality, the Italian economist was also very interested in the distribution of wealth in society. In 1895, he collected income data from a number of countries and fit the data with a distribution curve that became known as the Pareto distribution. Rather than being a bell-shaped normal distribution, the Pareto curve has a lot of people at the bottom end of the wealth distribution, a wide range in the middle class, and then a few superrich. The Pareto distribution is where the so-called 80-20 rule comes from, as roughly 80 percent of the wealth is owned by 20 percent of the people. Over the past century, economists have confirmed that income and wealth tend to roughly follow a Pareto distribution and that this result is remarkably consistent across different countries and over different periods of time.