The Market and Economic Stratification

Phil Martinez

Capitalism is a socio-economic system in which the productive assets of the economy (land, labor, and capital) are privately owned. Capitalism is also known as the “market system”.

While the term “capitalism” refers to the ownership or class structure of this system, the term “the market system” emphasizes the mechanism relied upon to engage in economic transactions, distribute resources and benefits, and to determine what products are produced.

Proponents of unregulated Capitalism often argue that it has proven to be the most liberating socio-economic system in history. This perspective emphasizes the political freedoms, social and class mobility, and the broadening inclusion of marginalized populations into economic activity.

Critics of Capitalism often argue that it has proven to be a socio-economic system that has concentrated the greatest amount of economic power in the fewest number of elites in history. This perspective emphasizes the ease with which capitalism allows private economic power to trump democratic political authority, the increasing gap in income and wealth and enduring class divisions, and the systematic exclusion of the poorest groups from benefiting from available resources.

I.    The Market System Simultaneously Generates and Removes Obstacles to Economic Resources

A more independent perspective reveals that an unregulated market system simultaneously both generates and removes discriminatory obstacles to economic opportunity and rewards.  Furthermore, both elements of this contradictory dynamic occur for the same reason: market incentives to gain maximum personal benefit provide motivation for both open, competitive, equitable access and for restrictive, non-competitive, discriminatory denial of access.

A.     How the Market Recreates and Generates economic Stratification.

(i)    The Market System Maintains Economic Stratification Based Upon Past and Current Conditions.

As in all societies the current distribution of assets and access to resources is based upon both historical patterns and current market conditions. The current economic structure is shaped by the past in two ways.

First, the continuing repercussions of past events are felt today, for example, in the way that 300 years of African slavery in the U.S. still affects where African-Americans live, and the amount and value of the real estate and other assets they own, 140 years after slavery was ended.

Second, past patterns of economic stratification and discrimination can be regenerated or can be continually maintained, such as refusing to provide real estate loans to African-American families in particular neighborhoods.

Of course, the current distribution of assets and access to resources are also partially determined by current market conditions. In particular the current Supply and Demand for particular assets and resources may change the value or availability of the assets or resources. Additionally, a change in the market may change the Demand for or the Supply of particular skills, abilities, education, or specialized trained labor. Finally, contemporary economic stratification may be generated by current acts and forms of discrimination.

(ii)    The Market System Generates Economic Stratification Based Upon Ownership

(a.)    While Capitalism allows for more social mobility than antecedent economic systems, it also stratifies social groups based upon the distribution of and access to economic, political, and social resources. These resources include ownership, wealth, income, education, legal redress and protection, judicial review, government support, social networks, political access and representation, et cetera.

(b.)    However, these resources, and in particular the economic resources, are distributed by the market system based predominantly on the ownership or control of economic assets. These assets can be productive assets (land, natural resources, raw materials, labor, capital, machinery, buildings, businesses); financial assets (stocks, bonds, gold, savings, et cetera); or technical assets (knowledge, skills, abilities, education, training, experience, et cetera).

(c.)    The higher the market value of the asset(s), the greater the return or reward for owning it. While the lower the market value of the asset(s) the lower return one gains from owning it. In other words, the wealthier you are the more you are rewarded.

However, the most important aspect of this process is how it translates into future returns and especially into economic success and power. As people are successful in the market they gain increasing access to own or control new assets and resources, thereby they gain an increasing probability of future success. Whereas, as people fail in the market, they increasingly lose control or ownership of assets and resources, and thereby gain an increasing probability of future failure.

(d.)    The higher the value of assets one owns, the greater the probability of future success, high returns, and access to new resources. Similarly, the lower the value of assets, the less likely are future success, high returns, and access to new resources.

B. The Market System rewards efficiencies, abilities, and innovations.

Perhaps the primary contribution of the market system is the incentive structure it provides for efficiency. Since efficiency, innovation, and production-specific abilities lower the costs of production and raise net profits, they earn higher compensation. This drive for lower costs and higher returns tends to ignore productively-irrelevant characteristics such as class, race, ethnicity, and gender. This tends to erode previously existing forms of discrimination. It also tends to provide protections, such as the enforcement of civil liberties and civil rights, ensuring free access to a competitive market of the most cost-efficient workers.

C.    The market system also distributes access to resources based upon the need to generate maximum profit.

At any particular, historical point this may increase or decrease discrimination depending upon the economic and social context. If a market competitor can reduce costs, limit competition, or gain advantage by discriminating against any particular group, then it will do so.

D.    Any particular process of discrimination usually includes more than one form of discrimination.

(i)     Since every individual has a gender, racial, ethnic, class, and age identity it becomes very difficult to isolate the a specific motivation behind a discriminatory act. Additionally, a person does not experience discrimination in any of these areas as independent of their identity. Thus, there is no primacy or ranking as to which form of discrimination is more “fundamental”.

Thus, the market generates contradictory socio-economic forces:

(a.) as historical patterns and forms of discrimination endure and are simultaneously undermined by the need for new efficiencies and lower costs;

(b.) new stratification occurs as both an expression of continuing social antagonisms and as a method to gain or promote profit or advantage in an imperfect market;

(c.) even as there are examples of people succeeding against all the odds (Horatio Algiers stories) simultaneously, there are many, many, many more examples of people failing due to discriminatory access to resources.