We have what is known as an inflationary monetary system. An inflationary monetary system means that over time, the amount of money that is circulating increases, with prices of goods increasing as well. Unfortunately, this penalizes people who want to save money, increasing inequality. 

The reason that we have inflationary money is that an inflationary monetary system reduces the burden of debt over time. Since prices and salaries rise over the years, debts become smaller over time. The easiest way to think of this is in terms of housing prices. Say you buy a house for $100,000 in 1970 and take out a loan to do it. By the time you finish paying off that loan in 2020, the house is now worth $600,000 due to inflation. In basic terms, $100,000 in 1970 is worth more in purchasing power than $100,000 in 2020. This is the largest benefit of inflationary money, your debts become worth less over time.

Knowing that your debt has a reduced burden over time encourages people to take out loans for many different things. People might take a loan out to start a new business, buy a car, or go to college. There are several good things about an inflationary system like this. 

This type of system has downsides though and those downsides are not frequently explored. A system of inflationary money doesn’t just reduce the burden of debt, it actively encourages people to take on more debt. 

If instead of buying a house with $100k in 1970 you just saved that money in the bank, you would have much less purchasing power in 2020 than if you bought a home that you could now sell for 600k. 100k in 1970 could buy you a house, in 20202, it doesn’t. While many of us understand this idea, people don’t realize how it hurts a lot of people. 

People in the middle class and above can invest their money in things like the stock market, while those with lower incomes can't afford to invest their money, they have to spend it on food and other necessities. This leads to a situation where the middle class and above benefit from inflationary money through investing while the lower class is stuck losing purchasing power every year since they have to spend most of their money and keep whatever is leftover in savings for emergencies.

When new money is created, the value of every already existing dollar – meaning the purchasing power-  falls. People who invest get to have their money grow, while those who save lose purchasing power because the new money that has entered the system dilutes the value of their saved dollars.

While rarely explored, this dynamic is one of the largest drivers of the increased inequality in America that we've seen over the last 50 years. New money is being created more than it ever has before. This extreme money printing manifests itself in the growth of investable financial assets, which is how you can see things like a stock market that grew for 10 years straight from 2009 to 2019 even though many people felt economic insecurity.

 It's the fact that new money gets created at all that penalizes savers, though the extreme rate that this has been done over the last 50 years is what has led to such drastic effects. Even in a scenario where the people who get access to new money were low-income earners, inequality will still rise. As people spend their new money, they put it into the pockets of the middle and upper class, who invest the money and get to watch it grow. This is why inequality will keep rising as long as new money creation keeps accelerating. 

It's important to understand that this rising inequality is inherent to our system of money, and as long as new money gets created in an inflationary monetary system this growth in inequality will happen. You can't fix inequality without understanding the monetary aspect of its rise.