Inequality and its consequences are the subject of intense recent debate. We address the relation between inequality and liquidity, i.e. the frequency of economic exchanges in the economy. We do that within an intentionally simplified model of the economy, where all exchanges that are compatible with agents' budget constraints are possible. Assuming a Pareto distribution of capital for the agents, that is consistent with empirical findings, we find an inverse relation between inequality and liquidity. By quantifying the amount of inequality in the system by the exponent of the Pareto distribution, we show that an increase in inequality of capital results in an even sharper concentration of financial resources, leading to congestion of the flow of goods and the arrest of the economy when the Pareto exponent reaches one.
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