Social stratification and the free enterprise system's economic inequality

Capitalism and the Free Enterprise System
Introduction
There are essentially three types of economies in the world—the command economy, in which the prices of goods and services are set by the government in a centralized fashion in an attempt to control for economic instability; the free enterprise system, in which the market determines the prices of goods and services via the laws of supply and demand; and the mixed-economy, which combines a bit of the two models into one, with government setting or capping prices in some industries to control for monopolization and de-regulating others to encourage competition and lower prices in an attempt to stimulate economic activity and investment. In America, the mixed-economy can be seen through much of the nation’s history though America is widely regarded as being a capitalistic economy with a free enterprise system. The reality is that social stratification plays an important role in how the free enterprise system works. This paper will discuss capitalism and the free enterprise system from the standpoint of social stratification to show that the free enterprise system is dependent upon inequalities that arise from social stratification.
Weber’s Theory of Social Stratification
The theory of social stratification hails from Weber who determined that all capitalist societies are going to be divided into classes. There will be the upper class, which is the moneyed class or the class that possess property. Then there will be the white collar working class, which will be one notch below the propertied class and which will not own extensive property holdings. Then there is the petty bourgeoisie, which is the lower middle class that consists of small business owners and merchants as well as what Weber referred to as semi-autonomous peasants; and finally there is the manual labor working class—i.e., the blue collar working class (Gupta, 1992).
Weber believed that as a capitalistic society expanded, the white collar or middle class should expand as well. This is essentially what happened in American society in the 20th century, though the expansion of credit after WWII also had a great deal to do with that (Patterson, 1996). Credit expanded as the global order of the world among the world’s top producing countries was shifted to benefit the U.S. primarily through the Bretton Woods agreement (Amadeo, 2019). This was the system that allowed for the expansion of credit, as it turned the USD into the world’s reserve currency, meaning that goods and services could be traded for in USD and that nations could hold USD in their coffers to offset instability in their own economies and currencies. America’s debt in other words was financed by the nations of the world. This arrangement was in place for several decades until the Nixon Shock closed the window on these nations’ ability to redeem their USD for gold. The Nixon Shock riled economic markets and disrupted the lives of the hitherto glib middle class in the U.S. Prices skyrocketed and markets panicked. Nixon then went to work on securing the USD’s reserve currency status and keeping the middle class from being destroyed—the Petrodollar system was born through an arrangement between Nixon and the Saudis to sell their oil in USD to the rest of the world (ensuring that the rest of the world have to keep buying USD) and in return getting military protection from the U.S. (Spiro, 1999).
Through these series of events, one can see that the social stratification theory put forward by Weber was only half correct: the growth of the capitalistic system did not necessarily lead to the growth of the middle class. Instead, what led to the growth of the middle class was the expansion of credit in the post-war world. The middle class came into being in force following the restructuring of the global order. Had there been no expansion of credit, the capitalist system would have cannibalized itself, as it had separated quite a ways from what Adam Smith saw as absolutely necessary in order for capitalism to work: the principle that virtue must reign over greed.
Inequality
Weber believed that inequality was a natural outcome of any arrangement of society and that the socialist agenda, which promoted class warfare—i.e., the working class against the upper class—was ideologically driven and unnatural in fact. Societies which had their social structures determined by class were not necessarily as Marx saw them but rather all about an intersectionality of class, authority and position. Some members of the upper class, for example, could lack wealth and still their aristocracy would be respected and they would have some sway in politics, government, and society. One’s heritage, one’s standing in society, and one’s wealth all contributed to one’s power in society (Gupta, 1992). However, as time has marched on, Weber’s theory has grown less useful, as inequalities have sharpened and social stratification has become much more ingrained with upward mobility less possible today for a number of factors than in days of old, when the virtues propounded by Smith were still in ready supply among the leaders of the world. Today, the elites are widely regarded as controlling, manipulative and concerned about maintaining only their own power. The shrinking middle class, moreover, is a symptom of the ill-use of credit in the run-up to the credit bubble that blew the housing bubble that led to the derivatives bubble that burst in 2008. The global economic crisis that followed was indicative of the extent to which the global economy was now interwoven and connected: what had begun as a capitalistic free enterprise system in the West had morphed into a globalized system of interconnected economies, both command and free market, leading ultimately to a global mixed-economy that could not suffer on one side with that suffering rippling across the entire board like a tsunami and taking out everyone.
The effects of this interconnectedness are clear. Social stratification has intensified in recent years, leading to increases in poverty and widening inequality between the top 1% and the bottom 99%. Weber had argued that the expansion of the capitalistic free enterprise system would not lead to polarization between the classes—yet polarization has occurred. Marx, in this sense, has been proven correct that capitalism would lead to polarization—and yet he has been proven incorrect in that this polarization would lead to class uprising. Both Marx and Weber had their own views on social stratification, yet neither has been shown to have foreseen the current situation, though fifty years ago one might have argued the case differently (Bendix, 1974). The Frankfurt School has explained the lack of a class uprising to overthrow the aristocracy by the fact that the ruling class has run the culture industry for the past 100 years, which has in effect neutered the will of the working class to do anything other than spend its time on mindless entertainments that do nothing to develop the people’s intellects or wills (Horkheimer & Adorno, 1944).
The free enterprise system envisioned by Weber should have led to a mutually beneficent system in which the working class benefited from the upper, propertied class and vice versa. Without labor, the propertied class could not produce, and without investment the laboring class would not be able to work. In a free market economy, the market would determine what goods and services were in demand and the moneyed class would invest accordingly ensuring that jobs were created. What happened, however, in the 20th century was that greed began to reign over virtue. Smith had raised this point in Wealth of Nations, implying that if nations ceased to engage in capitalistic endeavors with due regard and respect for one another, the healthy system of competition would quickly change into a zero-sum game in which total dominance was the goal. The 20th century was essentially a zero-sum game in which competing nations sought dominance over the world’s resources in order to control the board and gain monopoly. This was the main reason for both world wars, and by the end of WWII it was clear that the main power would be the U.S. in the West and the Soviet Union in the East. The U.S. would not be content however to control only one sphere of the globe: it wanted the whole thing—and so it entered into Asia via the Korean War and the Vietnam War and later began offshoring jobs from the U.S. to other parts of the world (third world countries) where labor could be obtained for cheap and producers could increase their profit margins. This only led to more inequality at home, as workers who prior to offshoring had jobs now found themselves being laid off so that producers could employ people in Asia as their new indentured servants.
The Decline of the Free Enterprise System
As jobs were outsourced abroad and credit began to shrink, the economy suffered: there were fewer people working and the central bank intervention had caused inflation and the value of the dollar to drop (Spiro, 1999). The free market in America had turned into a mixed-economy via the Federal Reserve and the needs of the global economy to determine the prices of things like oil by having oil producing nations agree to only pump so many barrels per day in order to affect supply and demand and thus influence pricing. The free market system in America was further exacerbated by the need for industries to be bailed out by the government following the accumulation of bad debts and the inability of those companies to honor those debts. Though workers were being laid off and jobs still being shipped overseas, the companies were bailed out (i.e., the producers were given breaks by the government in order to get back to producing—but the widening of inequality persisted as the laborers who depended on the investment of the producers for work were still being shafted as producers continued to send work to other parts of the world where labor could be contracted for much less). This has basically been the problem that President Trump has talked about from day one—i.e., the need to return investment and jobs to the U.S. so that Americans can get back to work again.
It was Weber’s belief that every social played an important role in society. The blue collar working class was just as important as the propertied class; the middle class had an important role to play as well, as did merchants and so on. Every class was interconnected and no one single class could survive without the other, such was the nature of the interdependence. The problem for Weber’s theory was that he was not looking at the world through the prism of globalization, which would effectively kill the free market system of enterprise. Capitalism, which had so much promise according to Smith (so long as men remained virtuous), essentially died in the 20th century when men became greedy and began fighting over hegemonic control of the world.
The globalized world order that resulted essentially created a new economic system, which has some aspects of the free enterprise system and some aspects of the command system. The global economy is a mixed-economy. And as a mixed-economy, some industries are controlled and others are less so—but there is another issue that has to be considered to understand what has happened in terms of social stratification and the rise of greater inequality than ever before—and that is the effect of globalization on labor and nationhood.
Labor, Inequality and Nationalism
The globalized market and the loss of virtue in the capitalistic system has led to the search for cheap labor abroad by the producers who prior to the 20th century were largely reliant upon the labor of the workers in their own nations. The re-ordering of the world following the end of WWII essentially made it so that producers, the upper class, could look abroad to other parts of the world to find cheaper labor and increase their profits. So in effect the rich became richer.
Meanwhile, the laboring class—the blue collar workers, who should have been benefitting from the investment of the producers—were getting poorer. They were no longer working as much because the jobs were going overseas. They were also finding the value of their own currency being depleted by way of inflation and the interventions of the central banks. They could not afford what they once could, and the mask on all this was the expansion of credit. The Nixon Shock ripped that mask off and the world realized that the U.S. had no intention of making good on its debts as it was no longer willing to trade its USD notes, which had no intrinsic value, for gold, which has always had intrinsic value throughout history. To get the nations of the world to go along with the scheme, the U.S. allied itself with the House of Saud. This ensured that the producers could keep on producing but it did not do anything for the working class or for the middle class, which now began to find itself being pinched whereas before it was being prodded. Now that investment was flying overseas, laborers at home were unemployed. Stories of factories, mines, warehouses, and so on, shutting down and moving elsewhere became the norm in America. What had once been a nation of industry became something else—a nation of finance, with all the power concentrated in Wall Street. This re-concentration of power in wealth in the hands of a few monopolists in New York and in Washington led to the widest growth of inequality on record.
What should have been a system in which the lower class supplied the labor, the middle class supplied the skills, and the propertied class supplied the tools in the free enterprise system became a system in which greed replaced virtue, honor and duty; a system in which the producers sought to enrich themselves in the new world order that allowed them to use slave labor from third worlds to create goods that could be traded in other parts of the world. There was no longer a sense of desire for the balance that Weber saw possible through the capitalistic system. Instead, there was outrage and anger of the rising inequalities which resulted from a virtual institutionalization of greed in Wall Street and Washington (which allowed for offshoring and the undermining of the balance at home). The outrage bled into a demand for a new economic system—socialism—i.e., what Marx called for in his anger and resentment, which stemmed more from envy for what the propertied class possessed than for any care or concern over inequality or poverty.
The problem here was that socialism would not fix the answer. Socialism was essentially a form of a command economy in which all things were determined by the state and no one owned property—except the state. Therefore, if one were part of the state, one could live quite well. If one were not part of the state, one would have to wait in line just like everybody else: food, medicine, school—it would all be doled out equally, in small amounts, and eventually one’s country would look the way Venezuela does today. Socialism was no more an answer to the problems of inequality and social stratification than capitalism without virtue.
Ultimately, therefore, the biggest issue is the same as it has always been throughout time: a lack of virtue in the conduct and behavior of men. Whenever men abandon virtue and ethics, they turn into problematic villains in stories in which they could have been heroes. For instance, what if the major producers of the world’s goods and services had decided that instead of making an attempt to have a monopoly over the world’s markets they would have been content to stay focused on their own nation and their own people and stay content to be involved in the balanced relationship among the classes that Weber saw as mutually beneficial in a socially stratified society? What if they had not entered into hegemonic conquests? What if, instead, they had pursued national interests and ignored what was going on in the rest of the world?
Conclusion
These questions are essentially the ones driving the resurgence of nationalism today. People of the lower classes no longer want to support foreign wars that lead to more dominance that benefits only the producers and does nothing for the laborers at home. They want investment back in their own countries. They want their own people to work and to grow thanks to a balance of involvement between the upper classes, the middle classes and the lower classes. Social stratification today is viewed as a miserable effect of capitalism—but really today’s inequalities are the effect of an absence of virtue in a system that might have worked sufficiently well had the producers and the legislators remembered to maintain the virtues that Smith warned would be needed for the free enterprise system to work for the good of all.

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