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Pareto’s Law vs. Taxation Thieves

Written by Gary North on November 26, 2016

When honored by the legal code, the principle of equality before the law always produces economic inequality. In contrast, wealth redistribution by politics must begin with inequality before the law. It is impossible to achieve both forms of equality at the same time because people are unequal in their abilities to satisfy customer demand.

Defenders of the idea of the free market begin with the principle of equality before the law. Defenders of the ideal of the welfare state begin with the principle of inequality before the law.

I understand why power-seeking critics of the free market are outraged by economic inequality. They hate the free market, which minimizes state power and maximizes liberty. What never ceases to amaze me is the small army of self-proclaimed defenders of the free market who take seriously the ideal of greater economic equality seriously. They see steep economic inequality as a failure of the free market and therefore a defect in the ideal of liberty.

I have good news and bad news. The good news is that the reformers who announce greater economic equality as their ideal have proven incapable of achieving it — anywhere. The bad news is that, in their pursuit of an inherently unattainable goal, they undermine liberty, leaving the worst to get on top. Economic inequality remains constant; the means of achieving it changes: from satisfying customer demand to capturing the levers of political power.


Economic inequality is a constant. This galls the reformers. They refuse to admit that this is the case. If it is true that economic inequality really is a constant, then all programs of political reform to increase equality will fail. This would undermine all programs of political reform that are based on the ethical ideal of greater economic equality.

It turns out that economic inequality is one of life’s constants.

It was first described in an 1897 book by the Italian economist, Vilfredo Pareto. He had made a detailed study of wealth distribution in several Western European nations. He found this fact: about 20% of the population owned about 80% of the wealth. It did not matter which form of civil government a country had, the same distribution prevailed.

For over a century, economic historians and statisticians have investigated wealth distribution. They discover a very similar distribution.

This 20/80 distribution has become known as Pareto’s law.

Pareto’s distribution is what is called a power law. The angle of this pyramid of inequality prevails all the way up.

20% of the population owns 80% of the wealth.
4% (.2 x 20%) of the population owns 64% (.8 x 80%) of the wealth.
0.8% (.2 x 4%) of the population owns 51% (.8 x 64%) of the wealth

What is even more amazing is that this distribution prevails in fields far removed from economics. It prevails in the population distribution of cities in a nation. It prevails in the membership size of churches in a community. It prevails in arrests by departments.

The problem is this: no one knows why. This bothers analysts no end.

The main strategy of dealing with Pareto’s distribution is to ignore it. So, we find that critics of the free market ignore it. So does the small army of self-professed defenders of the free market who have adopted the power-seeking statists’ ideal of greater economic equality.

A 2016 STUDY

Credit Suisse, the huge Swiss bank, employs a staff of researchers. Every year, these researchers produce an economic report. The 2016 report offers a useful graphic. It reveals a pyramid of economic inequality.

(for the rest of my article, click the link.)

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