Some years ago I posted An Invisible Inequality here about how the buying power of a dollar isn't equal. Someone with more dollars can buy more per dollar than someone with fewer dollars, thanks to things like bulk discounts, reduced borrowing costs, and so on. I want to revisit this topic because I think I have a somewhat more concrete way to demonstrate the point I was trying to make in that article.
So for this model, I want you to imagine two variations on a very simple scenario. You get an allowance of one dollar a week, and you need at least one roll of toilet paper per week, and conveniently one roll costs one dollar, though you could buy a dozen rolls for ten dollars if you saved up that much.
In the first scenario, you don't have any money to begin with, so basically each week you get your dollar and spend it on a roll of toilet paper, and this goes on indefinitely, week after week. Your share of society's stock of toilet paper is therefore one roll per week.
In the second scenario, you start out with nine dollars, which means that in the first week you can combine it with your one dollar allowance to buy a package of 12 rolls, and benefit from the volume discount. This week you have no cash, having spent it all on toilet paper, but over the next eleven weeks, you don't have to buy any more, and instead you just pocket the allowance. Nine weeks later, you have recouped that nine dollars, and you still have two rolls of toilet paper to go.
So compare. In the first scenario, your dollars each get you one roll of toilet paper, no more, no less. In the second, your dollars get you 1.2 rolls, without actually depleting your savings, because you earn it all back.
The point I want to illustrate here is that things actually cost less when you have more money, and are more expensive when you have less. And in particular I wanted to show how this isn't merely a matter of someone with more money using it to buy more toilet paper; the savings they use for the initial bulk buy are more than fully recovered, and they can continue to enjoy cheaper toilet paper indefinitely, simply by virtue of having started with more money.
