Dec 08 - Victor Yakovenko
Statistical mechanics of money, income, and wealth

We present an analogy between the thermal Boltzmann-Gibbs distribution of energy in physics and the equilibrium probability distribution of money in a closed economic system [1].  As a result of multiple money transfers between interacting economic agents, the system develops an exponential probability distribution of money, which corresponds to the state of maximal entropy.  By analyzing income data from the IRS and the Census Bureau, we found that income distribution in the USA has a well-defined two-class structure [2].  The majority of population (97-99%) belongs to the lower class characterized by the exponential Boltzmann-Gibbs ("thermal") distribution.  The upper class (1-3% of population) has a Pareto power-law ("superthermal") distribution, whose parameters change in time with the rise and fall of stock market.  We propose a concept of equilibrium inequality in a society, based on the principle of maximal entropy, and quantitatively demonstrate that it applies to the majority of population.  

References:

[1] A. A. Dragulescu and V. M. Yakovenko, "Statistical mechanics of money", European Physical Journal B 17, 723 (2000).

[2] A. C. Silva and V. M. Yakovenko, "Temporal evolution of the
`thermal' and `superthermal' income classes in the USA during
1983-2001", Europhysics Letters 69, 304 (2005).

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Victor Yakovenko is a professor in the Department of Physics at the University of Maryland. His research interests span a range of topics including econophysics, the application of statistical physics to economics and finance.