Economic stratification
Encyclopedia
Economic stratification refers to the condition within a society where social classes are separated, or stratified, along economic lines. Various economic strata or levels are clearly manifest. While in any system individual members will have varying degrees of wealth, economic stratification typically refers to the condition where there are meaningful gaps between the wealth controlled by various groups, and few instances in the transitional regions.
Economic stratification should not be confused with the related concept, economic inequality
. This deals with the range of wealth, rather than the existence of distinct strata. Economic inequality and economic stratification can coincide, of course.
The causal conditions for stratification include:
The effects that stratification produces in society as a whole can be significant. They include:
In extreme cases, the social fabric can break down and result in open class warfare
such as happened during the French Revolution
, the Russian Revolution
, and many others.
Many of these effects also act as causative factors. This induces progressively greater stratification unless action is taken to limit a runaway condition. Corruption of the feedback mechanism is the most dangerous threat to any balanced system, since it can lead to economic oscillations of increasing magnitude until runaway inflation or depression results. A historical example of runaway stratification is the Great Depression
of the late 1920s and 1930s. As monopolies
gained increasing power and influence, the working class
gradually lost purchasing power until other factors, such as the bank failures, coincided to produce an economic collapse
. Such collapses can occur because the circulation of capital (M1)
in such systems becomes highly dependent upon continually increasing apparent quantities of M2
. A percentage of M2 is continually being converted into M1 until a point is reached in which the rate of conversion of M2 into M1 cannot be sustained by the available quantity of M1. In the case of the Great Depression, M2 refers to stocks and bank notes. When it became apparent that the valuation of M2 exceeded the supply of M1, a panic ensued to convert M2 to M1, resulting in the rapid apparent devaluation of M2, and the Wall Street Crash of 1929
. In the case where M1 is increased to support the increasing conversion of M2 into M1, inflation increases until the physical supply of M1 becomes unwieldy and the result is also economic collapse, as was the case in Germany
during the same period.
It is apparent that under these conditions, neither increasing the supply of M1 nor decreasing it (relative to M2) can effectively prevent an economic collapse. Therefore, it can be postulated that economic stratification itself ultimately results in economic collapse of one degree or another. An effective legislative process can prolong the period between collapses, but since one of the effects of stratification is the degradation of this process, it becomes a self accelerating process.
Economic stratification should not be confused with the related concept, economic inequality
Economic inequality
Economic inequality comprises all disparities in the distribution of economic assets and income. The term typically refers to inequality among individuals and groups within a society, but can also refer to inequality among countries. The issue of economic inequality is related to the ideas of...
. This deals with the range of wealth, rather than the existence of distinct strata. Economic inequality and economic stratification can coincide, of course.
The causal conditions for stratification include:
- Unequal distribution of resources (assets and income)
- Asymmetrical personal ability (EducationEducationEducation in its broadest, general sense is the means through which the aims and habits of a group of people lives on from one generation to the next. Generally, it occurs through any experience that has a formative effect on the way one thinks, feels, or acts...
, Genetic FactorsGeneticsGenetics , a discipline of biology, is the science of genes, heredity, and variation in living organisms....
) - Cultural priorities
- State institutions and activities
The effects that stratification produces in society as a whole can be significant. They include:
- Inefficient economic cycling
- Increasing corruption of judicial and legislative processes
- Dysfunctional handling of social and political changes
In extreme cases, the social fabric can break down and result in open class warfare
Class conflict
Class conflict is the tension or antagonism which exists in society due to competing socioeconomic interests between people of different classes....
such as happened during the French Revolution
French Revolution
The French Revolution , sometimes distinguished as the 'Great French Revolution' , was a period of radical social and political upheaval in France and Europe. The absolute monarchy that had ruled France for centuries collapsed in three years...
, the Russian Revolution
Russian Revolution of 1917
The Russian Revolution is the collective term for a series of revolutions in Russia in 1917, which destroyed the Tsarist autocracy and led to the creation of the Soviet Union. The Tsar was deposed and replaced by a provisional government in the first revolution of February 1917...
, and many others.
Many of these effects also act as causative factors. This induces progressively greater stratification unless action is taken to limit a runaway condition. Corruption of the feedback mechanism is the most dangerous threat to any balanced system, since it can lead to economic oscillations of increasing magnitude until runaway inflation or depression results. A historical example of runaway stratification is the Great Depression
Great Depression
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...
of the late 1920s and 1930s. As monopolies
Monopoly
A monopoly exists when a specific person or enterprise is the only supplier of a particular commodity...
gained increasing power and influence, the working class
Working class
Working class is a term used in the social sciences and in ordinary conversation to describe those employed in lower tier jobs , often extending to those in unemployment or otherwise possessing below-average incomes...
gradually lost purchasing power until other factors, such as the bank failures, coincided to produce an economic collapse
Economic collapse
There is no precise definition of an economic collapse. While some might consider a a severe, prolonged depression with high bankruptcy rates and high unemployment an economic collapse, others would additionally look for a breakdown in normal commerce, such as hyperinfalation, or even a sharp...
. Such collapses can occur because the circulation of capital (M1)
Money supply
In economics, the money supply or money stock, is the total amount of money available in an economy at a specific time. There are several ways to define "money," but standard measures usually include currency in circulation and demand deposits .Money supply data are recorded and published, usually...
in such systems becomes highly dependent upon continually increasing apparent quantities of M2
Money supply
In economics, the money supply or money stock, is the total amount of money available in an economy at a specific time. There are several ways to define "money," but standard measures usually include currency in circulation and demand deposits .Money supply data are recorded and published, usually...
. A percentage of M2 is continually being converted into M1 until a point is reached in which the rate of conversion of M2 into M1 cannot be sustained by the available quantity of M1. In the case of the Great Depression, M2 refers to stocks and bank notes. When it became apparent that the valuation of M2 exceeded the supply of M1, a panic ensued to convert M2 to M1, resulting in the rapid apparent devaluation of M2, and the Wall Street Crash of 1929
Wall Street Crash of 1929
The Wall Street Crash of 1929 , also known as the Great Crash, and the Stock Market Crash of 1929, was the most devastating stock market crash in the history of the United States, taking into consideration the full extent and duration of its fallout...
. In the case where M1 is increased to support the increasing conversion of M2 into M1, inflation increases until the physical supply of M1 becomes unwieldy and the result is also economic collapse, as was the case in Germany
Great Depression in Central Europe
The Great Depression severely affected central Europe. The unemployment rate in Germany, Austria and Poland rose to 20% while output fell by 40%. By November 1932 every European country had increased tariffs or introduced import quotas....
during the same period.
It is apparent that under these conditions, neither increasing the supply of M1 nor decreasing it (relative to M2) can effectively prevent an economic collapse. Therefore, it can be postulated that economic stratification itself ultimately results in economic collapse of one degree or another. An effective legislative process can prolong the period between collapses, but since one of the effects of stratification is the degradation of this process, it becomes a self accelerating process.