Wealth and whim: Should the wealthy spend their money as they wish?

livemint.com:

Of late, there have been many discussions on how much spending or ostentation is “too much" for a rich person. And the views are polarized along, “It is bad/ immoral/ unforgivable to spend so much when most of your fellow citizens need free food" to “It is their money and how they spend it is no one else’s business." Without getting moralistic, the question is whether there a way or framework to think about this in pure economic terms? That is what I attempt to do in this piece.

My analysis is largely based on a research paper, ‘Perspectives: Explaining Influence Rents: The Case for an Institutions-Based View’ by Gautam Ahuja and Sai Yayavaramand, published in the journal Organization Science, and some discussions with Professor Ahuja. Any distortions or over-simplifications are, of course, mine.

The framework, very broadly, is this: There are five types or sources of wealth creation, and the freedom to spend the money as desired should depend on how that wealth has been earned. These five can be roughly ranked in ‘moral’ terms.

‘Moral’ not in a spiritual sense, but determined by whether the money is ‘deserved’ in economic terms. Thus the questions are: How much of the wealth was earned by means of the honest efforts and capabilities of its current owners? And there is a hierarchy to this which determines the moral right to that money.

The logic? For an economic system to work well, rewards and efforts should be aligned, businesses should pay for their related costs, and the market should allow reasonable competition—meaning that another player should have a fair chance of replacing the incumbent. Coming back to the five sources of wealth, here are the five in decreasing order of desirability: The first are returns from