The rich ruleth over the poor, and the borrower is servant to the lender.” – Book of Proverbs, Old Testament

In the previous post, Bitcoin: Sound Money and Socio-Economic Prosperity, we have seen that the position of wage earners in the United States has mostly stagnated (and even worsened at some point) since the end of sound money in 1973 under the gold standard, a period spanning almost over 45 years. After 1973, the relationship which saw real GDP, productivity and real wages growing at the same pace was severed, with real wages growth completely stopping while real GDP and productivity kept growing. We concluded that, under these conditions, wage earners could not meet their individual mandates of providing for their families and saving for harder times and retirement.

How has the post-1973 growing wealth been distributed across society if wage earners have not been beneficiaries? Is it possible that wage earners could have maintained and increased their positions through other income streams? Income is defined as any money received through performing work, such as a wage, or through interest and dividend bearing investments.

In order to investigate this possibility, let’s review how income and wealth have been distributed since 1962. The following graph illustrates the pre-tax income inequality in the US (data from The World Inequality Database):

The graph above shows that, since 1973, the trend in pre-tax income inequality started changing in favor of the top 10% and was accentuated in 1980. Therefore, the bottom 90% of the population has not benefited from the positive and raising economic environment through increased income since its share of pre-tax income has been decreasing since 1973.

What about wealth? Wealth is the accumulation of capital not only in the form of savings, but also as physical assets such as real estate, foreign holdings, gold, etc.

The following graph from the World Inequality Database displays how wealth has been distributed in the US in the last 100 years:

Unsurprisingly, the trend of pre-tax income and wealth distribution are synchronized. The share of total wealth of the top 10% started increasing in the early 1980s as its share of pre-tax income began increasing in 1980. Something quite distressing from this graph is the blue line representing the wealth of the bottom 50% which is marginally over the 0% mark and which unfortunately dropped into negative territory during the Great Recession. At the peak of the Great Recession in 2009, the share of wealth of the bottom 50% was negative! Think about it: out of almost 200 million US workers in the labour force, a staggering 100 million have no wealth at all!

What happened exactly in the early 1980s, the year which triggered the trend change in income and wealth inequality? In 1981, President Reagan signed into law The Economic Recovery Tax Act. This legislation mostly promoted important tax cuts for the portion of the population earning high wages and other sources of income. The bottom 90% of the population did get fiscal advantages from the legislation, however to a much lower extent than the top 10%. As a result, the fiscal position of the top 10% grew higher over that of the bottom 90%, leading the way to an increase in income and wealth inequality. Additionally, the 1980s and 1990s saw the rise of legislations promoting increased de-regulation of the banking system, which disproportionately advantaged the top 10% by easing their access to credit for leverage.

The consequence of the tax cuts impacted significantly the fiscal position of the US government since its budget started running large deficits, something that had not occurred in the past during the gold standard:

The very nature of fiat money, under a debt based monetary system, was cornerstone in the structural change in the government’s ability and desire to balance its books and manage its budgetary position responsibly.

As can be observed in the figure above, under an equity based monetary system such as the gold standard, these tax cuts would not have been viable since budget deficits would have yielded a depletion of the gold reserves of the US. The very fact that money could not be created out of thin air meant that politicians were accountable on an economic perspective and towards a more equalitarian society.

An article published by Lindert and Williamson called ‘’Unequal gains: American growth and inequality since 1700’’, further strengthen my claim of the intrinsic positive relationship between sound money and equality. In this article, the authors reviewed the income inequality of a period ranging from colonial America shortly before independence in 1776, to 2010. Here is a graph from the study illustrating the variation of inequality in the US from 1775 to 2010:

On the above graph, I have manually added two important years. The first one being 1873, the year Congress enacted the Coinage Act, firmly placing the nation under the gold standard. The other one is 1973, the year President Nixon effectively abandoned the gold standard.

What the graph illustrates is a growing inequality in the US shortly after independence in 1776 and reaching a high in 1873 shortly after the civil war, the year the Coinage Act was enacted. From that point on, the trend in inequality was falling. According to Milton Friedman, the period of the early 1870s to 1900s represented one of the most prosperous in the US history: the economy doubled in size, productivity sky-rocketed, consumer price index regressed by over 30%, and real wages consequently increased.

Inequality furthermore decreased following the unfortunate Great Depression with the destruction of capital stock and with the occurrence of WW2. Nonetheless, it is difficult to see how the preceding trend of decreasing inequality from 1873 up to 1929 would not have maintained its course even without the impact of the Great Depression and the WW2.

The period after WW2, from 1945 to 1973, displayed a relatively stable situation regarding inequality, until the end of the gold standard and the irresponsible and destructive actions of the government to run large deficits which was made possible by the adoption of unsound money under the new debt based monetary system under fiat.


In this post, we have investigated the distribution of income and wealth in the US following the abandonment of the gold standard, and thus, sound money. In the previous post, Bitcoin: Sound Money and Socio-Economic Prosperity, we have seen that following the abandonment of the gold standard, real wages stagnated for over 45 years while real GDP growth and productivity kept increasing. Our objective was to determine how the extra economic wealth created since 1973 was distributed across society when the average worker, representing a significant proportion of the population, saw his real wage stagnating.

What we observed is that income and wealth were disproportionately distributed towards the top 10% of the population as a result of large tax cuts favouring the wealthy and which started in the early 1980s. These tax cuts were made possible through the government’s policy of running important fiscal deficits, a feature of debt-based monetary systems like fiat. Under an equity-based monetary system such as the gold standard or with Bitcoin, these policies would have led to an outflow of specie (gold or Bitcoin), which would have driven the government to reduce expenditures to achieve fiscal balance, and therefore act more responsibly.

These policies led to monetary inflation and debasement, which negatively impacted real wages and led to increased inequality. We have seen that between 1873 to 1973, inequality was trending downward as politicians’ excesses were curbed by gold. Once monetary policy shifted towards a debt-based system, inequality rose sharply to levels unseen since the end of the civil war in 1865.

In conclusion, sound money is cornerstone to the attainment of equality and the enfranchisement of all in the evolution of society. Inequality has been a root cause for many of the major societal disruptions in history, most notably: the American Civil War, the French Revolution, the Russian Bolshevik Revolution, to name a few. Bitcoin has a role to play. As we have seen before, it possesses all the attributes of sound money, and its decentralization removes the incentives of elites to increase their positions at the expense of the mass. As per a cartoon published in The Economist in November 2018, the current system and policies do not contribute to make society more equal:

However, sound money under Bitcoin and gold do.