Wealth and the Capitalist Spirit

Abstract

The wealth distribution in the U.S. is more unequal than either the income or earnings distribution, a fact current models of saving behavior have difficulty explaining. Using Max Weber's (1905) idea that individuals may have a 'capitalist spirit', I construct and simulate a model where individuals accumulate wealth for its own sake rather than as deferred consumption. Including capitalist-spirit preferences in a simple life cycle model, with no other modifications, generates a skewness of wealth consistent with that observed in the U.S. economy. Furthermore, capitalist-spirit preferences provide a way to generate decreasing risk aversion with increases in wealth without resorting to idiosyncratic rates of time preference.

Keywords: capitalist spirit, life cycle, wealth

JEL Classification: D31, E21, J23