Why Wealthy People Continue to Accumulate More Despite Decreasing Marginal Utility

Introduction

The concept of decreasing marginal utility of wealth refers to the principle that each successive dollar or unit of wealth provides less additional satisfaction than the previous one. Yet, a surprising number of wealthy individuals continue to amass more wealth without satisfying their insatiable desire for more. This phenomenon is driven by a myriad of psychological, ethical, and practical factors.

The Psychology of Wealth Accumulation

Greed is a term commonly used in major religious and moral philosophies to describe the unquenchable desire for wealth and power. This drive can be insatiable, leading even the wealthiest individuals to continually seek more. Psychologically, the need to accumulate more wealth serves as a way to gain social status, achieve personal satisfaction, and secure their future and that of their family.

Progressive Tax Rates

From a societal standpoint, the decreasing marginal utility of wealth also plays a role in the need for progressive tax rates. As wealth accumulates, the utility of each additional dollar becomes less significant. Thus, imposing higher taxes on the wealthy can help redistribute wealth and ensure that society as a whole benefits from the fruits of such wealth.

Alternative Uses for Wealth

However, when individuals choose to use their wealth for external purposes, the dynamics change. For example, philanthropists like Bill Gates, Ted Turner, Leland Stanford, and Andrew Carnegie leverage their wealth to create long-lasting positive impacts on society. Through their efforts, the marginal utility of wealth becomes more linear, with much of the benefit accruing to others.

Economic Rationality Behind Wealth Accumulation

While the marginal utility of wealth may decrease, it does not diminish to zero. As long as margin utility remains positive, earning more wealth continues to increase total utility. Therefore, it is economically rational for individuals to focus on increasing their wealth as long as they can enhance their overall well-being.

Conclusion

The ongoing pursuit of wealth by the rich, despite the decreasing marginal utility, is a complex interplay of individual psychology, societal norms, and economic rationality. While wealth accumulation driven by greed can have negative impacts, using wealth for broader, beneficial purposes can lead to linear or even superlinear utility benefits. Understanding these dynamics is crucial for creating a balanced and equitable society.