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Politicians often bicker about how big the government should be when it comes to redistributing wealth.

Question: My question is simple; would a laissez-faire approach to the market always result in inequality? Is there an upper-limit to capital/wealth accumulation? That is to say, if the governments never step in, are there any market mechanisms to counter-act a few people absorbing extreme levels of wealth?

Note: I want to focus on free markets as much as possible, but if we so choose to go down the rabbit hole of "equality of opportunity" and "equality of outcome" here are my two cents: "Equality of outcome" comes off as Orwellian and dystopian in that the economy is planned absolutely, but "equality of opportunity" implies winners and losers under a market where people are free to produce, consume and compete.

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  • $\begingroup$ I think one difficulty in answering this question is that it all depends on the initial conditions, fundamental assumptions, scope of inquiry, etc. Can we make models where there are perfectly free markets and no inequality? Sure, but those usually assume away much of the observed nuances we see in the world. In addition, it also depends to some extent on what types of models you'd want to consider. Are you most interested in this as a growth problem? An informational problem? If you're interested in a macro model, do you include imperfectly competitive (but still free) markets? Are there> $\endgroup$ – AndrewC Aug 20 '18 at 18:21
  • $\begingroup$ >adjustment costs for investment? Are agents infinitely lived (generally used to abstract away from individuals and instead considers "families" or "households"), or is it an overlapping generations model? If it's the latter, do agents know how long they'll live? And do they care about future generations or not? I don't mean to get too into the weeds, nor do I want to sound like I'm dismissing the heart of your question. The impact of government regulations on markets, the implications markets have for distributional concerns, inequality, etc. are all crucial questions that we must>> $\endgroup$ – AndrewC Aug 20 '18 at 18:22
  • $\begingroup$ >>consider. Unfortunately, it's very difficult to answer the question "do market mechanisms exist that will limit economic inequality in pure, free markets" without getting a bit more about the framework that you're most interested in considering. $\endgroup$ – AndrewC Aug 20 '18 at 18:26
  • $\begingroup$ NB and Example- (Sorry, realized I forgot to include above): One other thing to consider- how do you define "minimum government intervention?" That is, many models implicitly assume a form of property rights that is perfectly enforceable. However, this of course requires some amount of government intervention. More problematically, however, is that the amount of intervention might have little bearing on the "free-ness" of the market, but might have significant implications for how specifically the market operates (which can impact things like inequality). Consider two different approaches.1/ $\endgroup$ – AndrewC Aug 20 '18 at 18:31
  • $\begingroup$ In one, the government strictly and effectively enforces property rights. In this world, the government spends a lot of resources on building a robust legal framework that allows for incredibly comprehensive and detailed contracts. In the other, the government devotes less of the social resources to this legal framework (thereby minimizing taxes). However, this leads to more disputes over contract terms, and leads to uncertainty. Which situation is "freer?" Neither, really. The first is more distorted, perhaps (due to the higher taxation), but the second has more pronounced imperfections. 2/ $\endgroup$ – AndrewC Aug 20 '18 at 18:34
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A market is an social institution with various attributes and works under complex conditions. Under some conditions a pure monopoly is the only known limit.

Markets are creations by human intelligence and will not exist if not used for merchand. The market mechanisms are used in our society to enable a complex, diverse, work-sharing economy. Not the other way around.

Side note: The question is not how big a government is. A small government can have a bigger impact on a market than big government.

My question is simple; would a laissez-faire approach to the market always result in inequality?

The reason why markets are so useful, they lower the costs to synchronize the various supplies with the societal limitless demands (individual demands can be limited). Markets can react to technological, cultural and knowledge changes in the societies. But they depend on the kind of economy wherein they function. When the economy prefers bigger enterprises than many small firms, markets can not change much on these structures. Nevertheless the answer to your question is no. When a market starts under the condition of fair distribution and some other factors like transactions costs, market entry costs, costs for research and development and others don't play an important role, markets can stabelize the fair distribution of wealth.

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