Rich people once they made their wealth creation move on society they no longer need to work. Their capital gains actually start increasing from the ownership of human capital. So they get richer and richer without contributing work. In fact that wealth gained without contributing and creating new wealth rises at a compounding rate. Simply owning enough capital your wealth will grow at speeds that far excel what a person earns doing actual wealth creation whether that means creating a startup or labor.

So if you no longer create wealth but your ownership of capital is growing at compounding rates then what exactly is happening? What’s happening is that you are siphoning and extracting wealth off of people who create wealth. You own human capital so you take a cut of it off the top and you use that cut to buy even more human capital which compounds your wealth ownership to even higher levels. This is how billionaires like Warren Buffett or other investors grow their wealth by simply investing rather then creating wealth.

Thus wealth inequality is not a result of wealth creation. It is an artifact of capitalism. In capitalism wealth is variable among individuals and it fluctuates. However once wealth accumulates in concentration higher then normal among one individual or several it hits that compounding growth factor and wealth starts going up at astronomical rates and these wealth owners start buying up more and more human capital until they own all of it and benefit from all of it without actually contributing work.

You can see this effect in y combinator. The owners of y combinator don’t actually do much work. They have so much capital that they simply can take a bunch of no risk couple hundred k bets until one startup becomes a unicorn in which they rake in a ton of capital from the growth.

Think of this like property ownership. A rich person can invest his wealth in property and contribute zero work to society and simply rent his property out. The rent from the tenant is from wealth creation aka labor and the rich person simply siphons it from the top without contributing additional work. The property owner uses that income to buy more property and the cycle continues until you have an affordability crisis of housing across the US and the world.

This growth continues unimpeded and uncontrolled until the wealth inequality is so extreme it doesn’t logistically work. This is direction the world is heading in today.

This isn’t the full story though. When you take away capitalism to solve this problem you invent communism. Communism was the result of Karl Marx noticing this problem that is fundamental to capitalism. That’s why he got popular because he illustrated the problem of wealth inequality and how wealth naturally becomes more and more concentrated among a few individuals without those individuals creating wealth.

Hence communism spread all over Europe but was ultimately a failure. The reason why it’s a failure is because communism lacks incentive. It turns out that wealth inequality is what drives wealth creation. Without the ability to be unfairly rich you don’t get the economic drivers that promotes wealth creation and thus communism keeps things fair but you don’t create wealth.

So no system is perfect. Everything has problems. Actually I take it back. There is a perfect system. See Scandinavia. Basically create a more socialist and egalitarian society while benefiting and extracting technological wealth from adjacent societies that are capitalist. Have the government own human capital of countries that are very capitalist then redistribute that wealth to its citizens so those people can live in a more just society while the rest of world can burn.