Theory & Science (2007)

ISSN: 1527-5558

Is Economic Distribution Independent of Stratification? Theoretical and Empirical Considerations

Milan Zafirovski

Department of Sociology,
University of North Texas,
Denton, TX 76203; USA.


This paper presents outlines of a sociological explanation of economic distribution. It examines the impact of stratification variables such as power, status and class on economic distribution, i.e., of prior hierarchical societal differentiation on incomes. In particular, the paper represents an inquiry into the effects of pre-market factors on the market valuation of production factors, especially labor. An empirical-historical scrutiny of the hypothesis associating social stratification with economic distribution finds that class, power, and status ex ante differentiation are instrumental in generating and perpetuating ex post differentials in wealth and income between individuals and groups in traditional and modern societies. Such an impact of these priors on wealth and income distribution violates or suspends the principle of social (more precisely, distributive) justice.

Orthodox economics treats economic distribution as a purely market process of ‘factor pricing’, in which the distributive shares--wages and other incomes--of production factors, including labor and capital, are equated to their respective productive contribution or performance, the money value of their marginal productivity. This has come to known as the ‘marginal productivity theory’ of production and wealth distribution in a market economy (Makowski and Ostroy 2001:499). For illustration, an early influential formulation (by Leon Walras) of the neoclassical or marginalist theory of distribution states that the prices of productive services are equivalent or proportional to mathematically the ‘partial function of production’ (the first-order derivative) and substantively their ‘marginal productivities’. Such equivalence or proportionality obtains on the assumption of diminishing marginal productivity, namely, that (as another marginalist, Philip Wicksteed, says) the ‘marginal significance [productivity] of the increasing factor falls, and that of the decreasing factor rises’. In accordance with the marginal productivity principle, income distribution cum factor-price formation implies that every contributing productive agent gets its full, so fair or just share in the measure of its productive contribution (at the margin). And following this marginal principle, workers receive a sort of productivity or efficiency wages in the sense of a merit pay equivalent to productive effort and/or conducive to efficient contributions by virtue of being earnings exceeding the market-clearing rate1 (Akerlof 2002:414). In consequence, the total value or revenue to be distributed is exhausted, i.e. (in Wicksteed's words) ‘when differential [marginal] distribution is effectuated, there is no surplus [value] or no residuum at all’, which has come to be known as the Euler theorem of income distribution. Arguably, this signifies ‘full appropriation’ by means of every production factor, including labor, ‘getting one’s marginal product’ in a market economy (Makowski and Ostroy 2001:500), a sort of distributional nirvana where everyone gets a ‘just desert’ from the ‘apple-pie’. In sum, ‘neoclassical models imply that in a well-functioning economy workers [and the owners of other factors of production] will receive the value of their marginal product [which ensures] the fair distribution of rewards’ (Fishback 1998:760).

The economic theory of distribution, like marginalism overall, was deliberately purified or abstracted from the impact of stratification variables like class, power, status as well as politics, ideology, ethics, religion, ethnicity-race and related extraneous and usually prior social factors2. Presumably, these factors were either interfering with or insignificant for the spontaneous, even automatic, operation of the impersonal laws of distribution, including both the classical ‘iron law’ of subsistence wages and the neoclassical principle of efficiency cum marginal-productivity wages. (This marginal-productivity definition differs from the prevalent meaning of ‘efficiency wages’ as ‘above market-clearing’ earnings, cf. Akerlof 2002.) Particularly, according to US neo-classical economists (e.g. J. B. Clark), the general law of marginal utility governs not only product-price determination but also, in the form of a principle of final productivity, the formation of factor prices or income distribution, including labor rewards or wages.

Contemporary economics has completed marginalism’s exorcizing of stratification as well as ethnical and other social variables from the purist marginal-productivity theory of distribution. Supposedly, since every productive agency gets what it deserves, so deserving what it gets, as any ‘individual is rewarded with his marginal product’ (Makowski and Ostroy 2001:500), distributive injustice or exploitation is a non sequitur, empirical non-entity, or somehow magically exorcised, albeit some leading US economists admit that data on such productivities ‘do not in general exist’ (Arrow 1998:96). Conservative economists claim that the marginal productivity analysis of the ‘determination of rates of return to resources does not have any ethical implication. The Marxian theory of exploitation is logically fallacious. The fundamental injustice is the original distribution of resources--the fact that one man was born blind, and the other not’ (Friedman 1976:199-200). On the other hand, ‘d oubts about the marginal productivity foundations of income distribution theory keep cropping up’ (Leijonhufvud 2004:817) in contemporary non-orthodox economics.

Nevertheless, some neoclassical economists3 redefine in marginalist terms the notion of class or labor exploitation, thus of economic or distributive injustice, an idea implicit in Smith and Ricardo, and prominently explicit in Marx and his followers. Admittedly, wages are, as a neo-classical economist (Alfred Pigou) states, unfair if workers ‘are exploited in the sense that they are paid less than the value which their marginal net product has for the firms which employ them.’ Generally, the discrepancy between higher marginal productivity and lower rewards, including wages, is the essence of the marginalist definition of unfairness in distribution, or exploitation. In turn, conventional economics regards social stratification or hierarchical, as distinguished from horizontal, societal differentiation, division and inequality in Weberian terms of wealth, power, and status, as an ultimate outcome of objective economic distribution governed by market laws. Alternatively, it neglects or downplays the effects of prior differentiation in material or non-material endowments and other societal conditions on distribution and other market processes.

This paper’s intended contribution is to provide novel theoretical insights and empirical observations concerning the effects of non-economic hierarchical differentiation or stratification and related social factors on the distributive shares of production factors, including labor. The paper inverts mainstream economics’ conventional wisdom about societal stratification, especially differentiation in power and status, as an outcome or function of economic distribution. It posits that income distribution is conditional on pre-existing social stratification expressed in antecedent differentials in class, power, status and other pre-market factors.

Before proceeding further, a qualification is in order. No doubt, in substantive terms the most plausible hypothesis is that of an inter-penetration of economic distribution and social stratification. However, this can imply a methodologically useless correlation without the identification of independent and dependent variables, and thus a tautology: distribution determines stratification, and stratification determines distribution. Instead, in a non-recursive model economic distribution is a dependent variable, and social stratification an explanatory factor, while having in mind recursive effects.

The Impact of Stratification on Distribution: The Process of Societal Reproduction

Arguably, that the impact of antecedent class, power and status differentiation or social stratification, as well as various related non-economic or pre-market factors on economic distribution is impertinent and even absent is orthodox economics’ underlying premise. And even some economists (e.g. Neal and Johnson 1996) consider non-economic or pre-market factors in respect of their influence of income distribution in the labor market they tend to narrowly conceive them as differences in human capital, i.e. different skills and education of certain ethnic and social groups. Such a reduction of pre-market social factors to human capital commits the fallacy of misplaced economic concreteness or absolutism--common to orthodox economics, rational choice theory and Marxism--in that it is oblivious or negligent of such sociologically more substantial ex-ante determinants of income distribution as class, power and status divisions. Also, human-capital reductionism accords with rather than deviates from orthodox economics’ theory that productive agents’, including labor’s, rewards reflect their (marginal) productivities and thus ‘natural’ distributive justice in that its use of human-capital differences to account for those in distribution makes different incomes exactly mirror such attainment and productivity differentials. And this is what is contradicted by both theory and evidence within a stratification conception and explanation of economic distribution in terms of power, class and status effects on incomes. Such a conception posits and demonstrates that distributive injustice, including exploitation, in labor markets is pervasive (Wright 2002) and operates as the ‘structural basis’ of inequalities (Sorensen 1996) or the general mechanism of categorical inequality (Tilly 2000) in society, and consequently that the assumed equivalence of marginal productivity and income is far from being an ‘iron law’.

Human Capital Reconsidered

Further, in a way to describe human capital as a proper pre-market factor is a misnomer, if not non sequitur, insofar as it confirms with the equivalence of marginal productivity and income in that differentials in education and skills result in different contributions in production and thus differential rewards in distribution, a sort of productivity or ‘efficiency wages’ in the above sense. To that extent, human-capital explanations of income inequalities perpetuate rather than remedy orthodox economics’ fallacy of economic determinism a la marginal-productivity determination and its omission or neglect of prior social stratification factors such as power, status and class in distribution. Alternatively, marginalist economics would hardly assume that, just as differentials in human capital or education, various differentiations in power, status and class generate varying marginal efficiencies and consequently differential rewards in distribution or ‘efficiency wages’. And to assume so, it effectively dispenses with or contradicts the human-capital explanation of income inequality, which appears sociologically uninformed, naïve and even blind in the face of the social context, production and valuation of knowledge, including education and skill, as expressed in the common proverb ‘it is not what you know, but whom you know’, i.e. first and foremost, the ‘rich, powerful and famous’.

Thus, human-capital theory overlooks or denies that human capital in the form of secular knowledge or education is virtually irrelevant not only in theocratic and other dictatorships such as Iran but in free-market economies like America under neo-conservatism, at least in the Southern Bible Belt and for some occupational and other social groups. For example, apparently following the Biblical treatment of non-religious knowledge as a ‘forbidden apple’, ‘Bible-Belt’ and other US religious conservatives reportedly treat no schooling whatsoever as ‘better’ than secular education (Darnell and Sherkat 1997) and so implicitly human capital as defined by the theory. In addition, superior education (e.g. doctoral degree) and so human capital is almost irrelevant at least for certain occupational groups, primarily academics and other intellectuals, including human-capital theorists or economists, in America in that their incomes (not to mention political power and social status) are typically lower than those of many others, from businessmen to politicians to athletes and entertainers, with lower educational levels. In view of this reversal of the human capital-income equation, experienced first-hand by most of them, it is striking that economists and even some sociologists still ‘explain’ economic inequalities in America by those in human capital, i.e. education, skill and expert knowledge (Bourdieu 1998). Thus, an ‘apparent failure of the human capital model in explaining [income] inequality’ (Frank and Cook 1995:99) is observed in U.S. winner-take-all labor markets. Reportedly, the growth of income inequality in America recently has resulted ‘largely’ from the extension of such labor markets, in which pay distributions are more unequal than the ‘underlying distribution of effort and ability’ so that small differences in talent or performance lead to ‘enormous differences in incomes’ (Frank and Cook 1995:24, 98). This yields the inference that in the U.S. labor market ‘real changes have been not in [skills] but in the way the environment translates skill differences in earning differences’ (Frank and Cook 1995:85), which casts doubt on the human capital model of income inequality.

Conversely, most economists overlook that human capital can only effectively operate as a pre-market factor in economic distribution within a certain social context, specifically a free, democratic, rationalist society that both generates and values knowledge and education, i.e. modern liberal democracy as opposed to its alternatives, notably theocracy. Simply, human capital makes sense only in the age and society of the Enlightenment as the modern conception and valuation of human knowledge, freedom and life, not the ‘Dark Middle Ages’ and their sequels like the Southern ‘Bible Belt’ and Iran as proto-totalitarian attacks on individual liberty and secular education and culture alike (Bauman 1997). For instance, for human capital to be an effective pre-market factor of economic distribution in America, a necessary social context or condition is an Enlightenment-based concept and valuation of human knowledge (and life) or secular education as valuable in itself, not ‘just for money’. In particular, if this is to happen, if ever, in the hyper-religious US South, such an Enlightenment-based concept and valuation needs to replace or mitigate the ‘Bible-Belt’ devaluation and elimination of secular knowledge and education as ‘ungodly’ (and ‘un-American’) by religion and eventually theocracy, including anti-science ‘embarrassing Monkey Trial[s]’ (Boles 1999), replicating or evoking the ‘Dark Middle Ages’ in which all culture was the ‘servant’ of theology. Also, human capital can only operate as a pre-market factor in determining incomes of certain occupational groups like US academics and other intellectuals, including human-capital theorists or economists themselves, when certain political and other social conditions are fulfilled, notably the freedom and right of collective or labor organization, including collective bargaining, i.e. both economic and political democracy. Simply, their incomes will reflect their superior human capital or education only when they have such pre-market freedoms and rights, and not automatically as orthodox economics assumes, and conversely, they will not, if these groups continue to be denied them, as especially in the South. One wonders how their superior human capital or education can translate in and predict their equivalent incomes, as their own theory posits, if US economists and other academics, at least in the South, do not have or are obstructed in exercising even the basic globally recognized freedom, right or countervailing power of collective organization that defines industrial democracy, thus placed in a repressive economy (Pryor 2002), as the economic equivalent of one-party political system. In sum, human capital can function as a pre-market factor in distribution only in a human economy and society, i.e. a liberal-pluralist and humane economic-social system (Munch 2001).

Generally, the point is that human capital or education can operate as a pre-market factor in economic distribution only in definite social settings, such as a free, democratic and rationalist society like the Enlightenment-based Western world appreciating knowledge as such, and not in others like undemocratic, notably theocratic, times and contexts, from the ‘Dark Middle Ages’ to the ‘Bible Belt’ and Iran. In this sense, the operation of human capital is contingent on definite social factors, notably power, status and class, not quasi-automatic and as a deus ex machina, as per the marginal productivity ‘iron law’. In sum, the major problem with human-capital theory and economics overall is that it is oblivious to the all too evident fact that knowledge or education and so human capital is, as even some economists admit (Arrow 1994), a social creation rather than a factor independent of society. Simply, it is society that reproduces and (de)values human capital.

In turn, this analysis proposes and shows that not (just) differences in human capital and so marginal efficiencies, but preexisting class, power and status differentiations that cause and predict holders of varying places in a stratification system to gain and retain unequal incomes. To that extent, the above violates or suspends the supposedly ‘iron law’ of marginal productivity in income distribution—i.e., not individual human capital, but prior societal stratification determines ‘who get what’ in the present and future. Hence, in analyzing social stratification in its impact on economic distribution one hardly needs the concept of productivity incomes or efficiency wages as objective, non-arbitrary variables reflecting a determinate criterion like marginal productivities. The reality is, in Keynes’ words, the ‘arbitrary and inequitable distribution of wealth and incomes’ within contemporary market or capitalist economies, as the outcome of preexisting differentiation in class, ‘positional power’ (Perrone 1984) and social status and their operation in economy and society. As even some contemporary economists admit, economic distribution has an ‘arbitrary character’ (Allais 1997), so is opposite to a purely or automatic market mechanism a la the law of gravitation, as conceived in marginalist economics with its pervasive analogies from physics. And to admit such a character is basically to concede or imply that economic distribution is the process of translating power, status and class priors into incomes present and future, i.e. making ‘might’ in these forms into ‘right’ in economy and in extension society, and vice versa, such rights sustaining and reinforcing those ‘powers that be’ in a circuit of social reproduction.

Power, Status and Class and Economic Distribution

To reiterate, the paper contends that social stratification is not merely a function or effect of economic distribution, as most economist claim, but rather (or also) its explanatory variable or co-determinant. Generally, the relations between stratification and distribution are characterized by, to use Veblen's term, cumulative causation or inter-penetration rather than one-way determination from the second to the first in economic models. Unlike these models, a sociological framework acknowledges and expresses this cumulative or reciprocal causation between social stratification and income distribution. With such cumulative causation in mind, this analysis identifies and stresses the ways social stratification affects economic distribution, i.e. how class, power and status impact incomes. Such a framework proposes that ‘s ocial forces influence’ (Frank and Cook 1995:69) incomes, including wages and salaries, and yields three particular theses stated below.

In statistical terms, t he influence of social stratification on economic distribution implies a non-recursive model such as y = α + β1x1 + β2x2 + β3x4 + ... βnxn + ε; where y is a vector of distributive shares or incomes, x1-xn are vectors of stratification or pre-market variables such as power, status and class, α is a vector of constants, β1- βn are vectors of regression coefficients or partial derivatives indicating the effects of x1-xn respectively on y, and ε is vector of residuals containing other unknown or non-social factors in distribution.

Thus, a first thesis links stratification in terms of power with the distribution of income and wealth. It asserts and predicts that the greater (lower) institutional or systemic power of economic actors and groups (capital and labor) is likely to result in their higher (smaller) income and wealth, other things equal (human capital, efficiency, marginal or total productivity, etc.). In Bourdieu’s terms, differential economic capital, including ‘surplus value’ (or profit) and the different positions of production factors as exploiters versus exploited (Wright 2002), results and is predictable from prior differentiation in ‘political capital.’ (The opposite argument that economic capital or wealth determines ‘political capital’ or power as well as ‘social capital’ or status is explicit or implicit in rational choice theory and orthodox Marxism.) The above is both an empirical generalization and prediction of how political mechanisms lead or contribute to economic reproduction, in the sense of self-perpetuating power stratification or dominance by a ruling group leading or contributing to reproducing wealth and income disparities among various social groups. This can be denoted Weber-Dahrendorf-Lenski’s ‘power thesis’ of economic distribution in recognition of their emphasis on this factor (including domination or authority) in this connection.

A second thesis links stratification in social status with income and wealth distribution. It asserts and predicts that the greater (lower) social status of economic actors is likely to result in their higher (smaller) income and wealth, other things equal (human capital, efficiency, marginal or total productivity). In Bourdieu’s words, differential economic capital is conditioned by and predictable from prior differentiation in social or symbolic capital understood as the sum total of connections and status or prestige in society (e.g. network ties and influences). (In turn, social or symbolic capital in the sense of Weber concept of status honor and Veblen’s of societal esteem or ‘good repute’ is impacted by cultural and political ‘capital’ or non-economic factors, and not only by as rational choice theory alleges economic capital or wealth.) In group terms, categories that rest on differential economic capital (or classes) depend in their reproduction on what Weber calls ‘status groups’ and Veblen ‘leisure classes’ as non-economic collective entities premised on social capital in the form of, in their words, different ‘social estimation of honor’ and ‘esteem’ in society. Like the previous, this thesis is an empirical generalization and prediction of how social processes lead or contribute to economic reproduction in the form of self-perpetuating status differentiation or the superior prestige of a certain group leading or contributing toward reproducing wealth and income inequalities among various groups in society. By analogy to above, this can be denoted as the Veblen-Weber social status thesis of economic distribution.

A third thesis links prior class stratification with income and wealth distribution. It asserts and predicts that the higher (lower) class position of economic actors is likely to result in their greater (smaller) share in income and wealth distribution, other things equal (viz. human capital, efficiency, productivity). In Bourdieu’s words, differential economic capital in the present and future is affected by and predictable from an anterior objective structure of classes generating class habitus as the ‘product of history’ resulting from ‘the homogeneity of the conditions of existence’ and actors’ ‘earliest upbringing’, and then the producer of ‘individual and collective practices.’ In this context, subsequent revenues are conditioned by what some economists call initial income-distribution4 (Dobb 1973:34) or primitive differentials in economic capital, thus operating as the mechanism thereby prior class differentiation (re)generates inequalities between classes in society. Also, other analysts suggest the above thesis observing that class ‘inequality begets inequality’ and ‘history matters’ (Birdsall 1998), in particular that ‘given an unequal initial distribution of wealth, income will also be unequally distributed’(Niggle 1998). As observed, wealth ‘can be used to produce more wealth’ (Keister and Moller 2000), so a prior class position producing future incomes, which helps account for what analysts identify as the ‘rich getting richer while the poor became poorer, relatively and absolutely’ (Legge 1999), notably in America during neo-conservatism. By analogy, the preceding can be connoted the Weber-Bourdieu’s social class thesis of economic distribution. The following elaborates and substantiates the three theses.

The Power Thesis of Economic Distribution

According to the power thesis of economic distribution, in the ‘unequal distribution of wealth and power’ (Habermas 1975:39) the second operates as what Weber would call a conditioning, and the first as conditioned, variable (Dahrendorf 1959; Lenski 1984), though with recursive or feed-back effects (assumed as initial or primary by both Marxian and rational choice theories) and from markets and economy to polity overall. The thesis has strong empirical support in the observed link between productive agents’ (labor-capital) comparative structural or systemic power and their shares in income distribution (wages and profits) and generally the crucial role of this and other political or institutional variables in labor and other factor (and product) markets.

First and foremost, labor and other factor (e.g. stock) markets constitute specific social institutions by virtue of the existence and operation of a complex of institutional patterns and constraints, notably, as Weber emphasizes, ‘state-guaranteed law’ and ‘power constellations’. Thus, contemporary sociologists echo Weber observing that in late, oligopolistic capitalism the extent to which ‘exploitation [is] secured through economic processes depends today on concrete power constellations no longer predetermined by an autonomously effective mechanism of the labor market’ (Habermas 1975:52). In this view, in actual labor markets ‘factual constellations of power [determine] whether, and how, production of surplus value can be guaranteed through the public sector, and how the terms of the class compromise look’ (Habermas 1975:68). Also, other sociologists observe that labor markets are a ‘place where power and social structures matter’ (Stanford, Taylor and Houston 2001:11) and ‘unique labor market institutions within societies reflect the power of various groups to control and define the market’ (Fligstein 2001:16).

These and other observations cast doubt on orthodox economics’5 (and rational choice)

assumption of income and wealth distribution as purified from to exogenous social elements and so as a strictly market-economic realm governed by absolutely objective mechanisms or ‘iron laws’ (labor reproduction costs, marginal efficiency, supply and demand). For instance, they do so with respect to classical political economy (e.g., Ricardo) and its ‘iron law’ of wages, according to which labor incomes cannot, in the long run, exceed the costs of its reproduction or a basic subsistence level, as well as neo-classical economics’ marginal productivity theory of distribution.

Thus, an analysis finds that increased income inequalities in America since the 1980s are primarily due to the substantial decline of union organization and the real minimum wage reflecting the diminishing positional power of labor in relation to capital, alongside growing privatization and economic deregulation, and only secondarily to the ‘natural’ law of supply and demand (Fortin and Lemieux 1997). Another analysis suggests that in mature capitalism, income creation and distribution in the form of the ‘production and appropriation of surplus value are limited and modified by relations of political power instead of depending on the market mechanism alone’ (Habermas 1975:39). This yields the inference that ‘whether and to what extent, the class structure is softened and the contradiction grounded in the capitalist principle of organization itself is affected, depends on the actual constellation of power’ (Habermas 1975:40).

In particular, what economists call the coefficient of wage elasticity or flexibility indicating relative wage changes in reaction to those in the unemployment rate can serve to ascertain or approximate to what degree preexisting power stratification or domination affects economic distribution. Specifically, a lower coefficient of wage elasticity in respect with unemployment reflects the stronger impact of power stratification or the weaker effect of purely market forces on economic distribution, and conversely. In Weber’s terms, low wage elasticity indirectly expresses ‘domination by virtue of a constellation of interests’ (e.g. monopoly) and/or ‘domination by virtue of authority’ (state power) reflecting positional and institutionalized power respectively, so pre- or anti-market factors, in wages formation and labor markets overall. Generally, when comparing

wage-elasticity coefficients it is instructive to recall that, as Weber observes, the ‘emergence of rational [economic] association from amorphous social action has been due to domination. Indeed, domination has played the decisive role particularly in the economically most important structures of the past and present, viz., the manor on the one hand, and the large-scale capitalistic enterprise on the other’.

For example, according to the comparative coefficients of wage elasticity US and British wages are the least elastic or flexible (by growing less as the unemployment rate decreases in both short and long terms) compared with most European economies. Simply, by comparison with most of their European counterparts, for US and UK workers the reduction of unemployment does not seem to be a reason for celebration or make much difference, for their wages are hardly improved in consequence. For illustration, when unemployment declines by 1%, wages grow by less than that figure (0.32%, 0.94%) in short and long periods in the US (and the UK) and more in European countries like France (2.22%, 4.35%) Norway (1.96%, 10.59%), Italy (2.07%, 12.94%), Austria (1.44%, 3.11%), Sweden (1.32%, 12.16%), Switzerland (1.32% , 7.33% ), etc.

In essence, these perhaps unexpected low estimates of wage elasticity in America compared with other Western economies at least indirectly indicate that reportedly the ‘unique features and functioning of the US labor market may have more to do with forces of power and fear than with the freely flexible forces of supply and demand’ (Stanford et al. 2001:6). Overall, they reflect the observed fact that among modern Western economies America ‘is the purest case of a society in which capitalist firms are able to use the policy domains of the state for their own interest’ (Fligstein 2001:56) and against workers or unions subjected to ever-increasing joint big business-government repression (Pryor 2002), not to mention stagnating or diminished wages, including the highest wage inflexibility when unemployment declines.

The Status Thesis of Economic Distribution

According to the status thesis of economic distribution, present and current variations in income and wealth are (also) conditioned by prior differentiations in social prestige or honor. This section relies on and develops Weberian and Veblenian insights into social status and its distributional effects. Thus, the Weberian-Veblenian insight that people frequently act in the economy in the aim of gaining and increasing ‘repute and esteem’ (Veblen) or finding their niche in the ‘marketplace of Vanity’ (Weber) implies the role of social status in economic distribution. In particular, Weber suggests that greater distributive returns accrue to those status groups having a higher degree of ‘social estimation of honor’, as based on life style, family background6, ethnic origin, education, etc., than others, ceteris paribus (e.g. equal productivity). In his view, status society, exemplified by traditionalism, including feudalism, with its ‘closely delineated rights and duties [had] not only have a stabilizing effect upon the economy as a whole, but also upon the distribution of individual wealth’ to the effect that prior social-honor differentiation conditions present and future incomes. He finds that in consequence the development of modern capitalism, in particular the free, unrestricted operation of the market in income distribution, was obstructed or retarded by status-based society with its economic traditionalism.

Weber admits that not only economic traditionalism or status society but also modern capitalism or the free market economy is far from being freed or purified from extra-economic and pre-market, including racial, ethnic, and other ascriptive (Reskin 2003), forces playing a certain role in wealth distribution and virtually all economic processes. His invoked exemplar in economic traditionalism and modern capitalism alike is what he calls the belief in common ethnicity and so nation, which monopolistically encloses or delimits social circles and so economic opportunities and all life chances for different status groups within society. The outcome of such a monopolistic delimitation of social circles and their life chances is the sharp dichotomy and opposition between insiders and outsiders, natives and foreigners, which indicates a double impact of prior ethnic factors on economic distribution, i.e. opening for some groups, closure for others. In Weber’s words, this is the dichotomy and opposition between insiders as ‘positively privileged’ and outsiders as ‘negative privileged’ or excluded and discriminated against on ethnic and related bases, analogous to or reminiscent of that between masters and servants in feudalism and other status-based societies.

Notably, Weber suggests that the formation of status groups through their power, prestige and wealth in a reciprocal relation and reinforcement plays a crucial role in economic distribution. It does so in that status groups ground their claims to wealth in the differential ‘social estimation of honor’ as well as in ‘domination by virtue of authority’ rather than in economic productivity. As such an exemplar, Weber cites the ‘monopolies of status groups’ dominant in feudalism, yet presumably displaced in modern capitalism by ‘capitalist monopolies’ set up in the ‘free’ market through the ‘power of property’7. Overall, Weberian status groups’ wealth or income is anything but productivity reward and generally meritocratic, despite their peculiar notion of merit (Divine or natural ‘rights’), if their claims to superior shares are based on the ‘social estimation of honor’. What causes then the formation and consolidation of status groups is the major role of prior social prestige, in mutual association and reinforcement with antecedent power and wealth, in economic income distribution. Thus, Weber remarks that every ‘appropriation of political powers and the corresponding economic opportunities [through shares in distribution] tends to result in the rise of status groups, and vice versa.’ Notably, contemporary observers register the persisting and even increasing relevance of status considerations or social comparisons in ‘pay determination’ (especially) in modern winner-take-all labor markets (Frank and Cook 1995:58). Reportedly, external pay comparisons exemplify an ‘element of social construction’ in wage determination to the extent that the latter ‘may be strongly amplified through the social comparison process’ (Frank and Cook 1995:59).

In addition, through its influence on the nature and pattern of consumption and so product markets status differentiation tends to play an indirect role in economic distribution within status-based as well as other societies. The reason is, as Weber observes, in that any status-based society ‘lives by convention, which regu­lates the style of life, and hence creates economically irratio­nal consumption patterns and fetters the free market through monopolistic appropriation and by curbing the individual’s earning power’. He cites two cases in point: first, the feudal guild system in which individual members were entitled to a conventional status-based standard of consumption (a notion analogous to the modern concept of a living wage); second, the just price determined by status, ethical, religious and other pre-market factors rather than market supply and demand. As Weber8 noticed, the medieval just price, as requested by ecclesiastical ethics, ‘was determined by the test of whether or not at the given price the craftsmen in question could maintain the standard of living appropriate to their social status’. Some early institutional economists (J. M. Clark) essentially adopt this Weberian interpretation, by observing that the just price was ‘commonly considered that which provided an income to the craftsman or trader sufficient at a proper and customary way adequate to this station of life’. Status and related stratification (power, class) influences on price formation and distribution thus represent instances of the social constitution and construction of economic values, including prices and incomes.

As hinted, the role of status differentiation in economic distribution is not limited to pre-capitalist status societies or economic traditionalism exemplified by feudalism but extends, with some modifications, to contemporary society, Weber’s ‘spirit and structure’ of modern capitalism.

Weber implies this by suggesting that ‘a man does not ‘by nature’ wish to earn more and more money, but simply to live as he is accustomed to live and earn as much as necessary for that purpose’, retaining his ‘station’ in society or social status. As even some neoclassical economists (Pigou) admit, the notion that our social position ‘requires us to live in such and such a style and to do such and such a thing is a widely prevalent one, and what our ‘position requires’ is, of course, simply what other people in like position as to class, place or time are accustomed to do’. Also, some leading (heterodox) contemporary economists support Weber’s view by observing the role of social conventions in the formation of people’s attitudes to incomes in America and other modern Western societies. As observed, workers in these societies ‘get accustomed to a certain rate of increase in their standard of living’ (Stiglitz 1997:7) precisely because of such ‘new’ social conventions or ‘great expectations’ of ever-growing incomes, prior to the decline or stagnation of real incomes, especially in America under Reaganomics and other neo-conservatism, during the 1980s-2000s at least. Also, economists observe that people seek relative income by engaging in Veblenian invidious social comparison, pecuniary emulation, or conspicuous consumption driven by concerns for status or position (Frank 1999), and not only, contrary to orthodox economics, seeking absolute wealth or ‘just money’. Moreover, i n many modern, especially winner-take-all labor markets, non-pecuniary motives like status admittedly ‘may matter more’ than money, which makes such markets attract ‘too many contestants’ and a sort of zero-sum game, thus inefficient, even wasteful, in economic terms (Frank and Cook 1995:112-3). Overall, such status considerations are identified in the operation of most modern product markets (Bagwell and Bernheim 1996; Podolny 1993), and even the capital or stock market (Bakshi and Chen 1996).

In turn, the above is an instance or reflection of what contemporary sociologists identify as general growing trans- or post-materialist tendencies within modern Western societies (Inglehart and Baker 2000). This is in addition and, notably, connection to increasing leisure, as another example or realm of post-materialism, including Weberian status groups or Veblenian leisure-classes seeking social honor via positional consumption and a myriad of other economically irrational activities. Crucially, the secular master trend toward growing leisure in modern Western societies, except for America as a ‘deviant case’ in this and many other respects in recent times (Inglehart and Baker 2000), is an expression of people’s evolving culturally-formed evaluations about free time and work, and their aspirations, particularly status differentiation and its role in wealth distribution, not only, contrary to most economists, of increased productivity and efficiency or technological and economic progress.

As hinted, Weber and Veblen suggest by their notions of status groups and leisure classes as following conventions in their economic and other conduct that prior status differentiation co-determines income distribution and consumption thus transformed into what leading neo-classical economists admit as conspicuous or ostensive expenditure (Hicks 1961:56) of goods with a snob appeal (Samuelson 1983:117). As noted, subsequent research largely corroborate these Weberian and Veblenian views in that it finds that people’s ‘desire to achieve social status by signaling wealth through conspicuous consumption’ (Bagwell and Bernheim 1996:350) continues to play a major role in the economy in general, economic distribution in particular, including labor ( Frank and Cook 1995) and stock markets (Bakshi and Chen 1996). In light of these findings, Weber’s ‘spirit and structure’ of modern capitalism admittedly involves the acquisition and consumption of wealth not only or even mainly for its strictly ‘consumption value’ but also for its consequent social status (Bakshi and Chen 1996:135). To that extent, Weber’s status society, defined by the pursuit and differential ‘social estimation of honor’ via positional consumption and various other economically irrational actions, is far from, as he (and Mark, but not Veblen) expected, caput mortuum (presumed dead) but a continuing living reality in post-materialist Western civilization.

The Class Thesis of Economic Distribution

According to the class thesis of economic distribution, present and current variations in income and wealth are (also) conditioned by prior differentiations in material resources, i.e. anterior divisions between social classes. Simply, the thesis posits and predicts that ‘who gets what and how’ in the present and future (also) depends on what resources they got in the past, in a process of class, conjoined with power and status, reproduction or perpetuation of economic inequality. In short, differences in current and prospective incomes are conditional on and predicted by those in preexisting wealth. In Marxian terms, ‘added value’, including surplus value or profit as the appropriation of ‘unpaid labor’ (Wright 2002), is determined by the distribution of the means of production or property as original economic distribution (Dobb 1973), so by initial differentials in capital. In particular, to use Pigou's marginalist definition of exploitation, workers are ‘exploited’ to the effect of receiving less than the value of their net marginal productivity and so wages are ‘unfair’ because of a preexisting class stratification or division between capital and labor.

Overall, it is instructive to reiterate and emphasize that, as contemporary analysts put it, class ‘inequality begets inequality’ and ‘history matters’ (Birdsall 1998) such that incomes will be subject ‘unequally distributed’ in light of an ‘unequal initial distribution of wealth’ (Niggle 1998). In this view, past wealth ‘can be used to produce more wealth’ (Keister and Moller 2000) via present and future incomes, with the outcome of the ‘rich getting richer while the poor became poorer, relatively and absolutely’ (Legge 1999), as in America during the 1980s-2000s. In this sense, one can perhaps say that the ‘old money’ determines and predicts the ‘new money’, albeit with some variations in this process of wealth reproduction, as a sort of intuitive (‘common-sense’) or non-technical version of the sociological class thesis of economic distribution.

In a Weberian context, what he calls property revolutions as radical changes in a given distributive system, involving but not confined to land reforms, and in extension (yet not always) social structure, have been historically driven by the experienced or perceived arbitrary nature and operation of the distribution of wealth. For instance, he observes that both traditionalism and arbitrariness in income distribution, as reported for patrimonialism as well as feudalism, did ‘affect very deeply developmental opportunities of capitalism [specifically] so as to hinder economic innovations that might endanger the social equilibrium or meet religious and ethical objections.’ At this juncture, these revolutions reflected a sort of social deconstruction by Weber’s ‘negatively privileged’ classes of the existing system of economic distribution as, in Keynes’ words, ‘arbitrary and inequitable’, aiming at and often resulting in a certain degree of property redistribution9. By contrast and in reaction, ‘positively privileged’ classes seek to reconstruct (redefine) the system of wealth distribution as ‘Divinely ordained’ (Bendix 1984) and claim ‘Divine rights’ for themselves, as seen in Europe’s ‘Dark Middle Ages’ and America’s Puritan and fundamentalist ‘Bible Commonwealths’, so immutable, natural and just. Hence, they do so through what Weber would term a theodicy of their privilege combined with, as contemporary sociologists (Bourdieu 1998) put it, sociodicy as its secular rationalization a la social Darwinism (natural selection, skill, performance, merit, etc.) attributed mostly to orthodox economists as exemplary apologists or celebrants of the status quo. To use Mannheim’s concepts, what propels and justifies distributional revolutions is ‘utopia’ as the ideological or class-consciousness of ‘negatively privileged’ classes, while what sustains and rationalizes the distribution system is ‘ideology’ as the counterpart of the ‘positively privileged’. The above yields the inference that, to extend the proverb about money or wealth, class ‘privilege begets privilege’, so its ideological defense through theodicy and sociodicy, and eventually also resistance or transcendence via property revolutions or utopia by non-privileged classes.

Similarly to Weber and Marx, Schumpeter connects the ‘social rank of a class and its economic function’ in production and distribution, thus by implication connecting the prior stratification between social classes with subsequent income inequalities, simply past with present and future privileges. He implies that the first conditions and predicts the third via the second in the sense that the higher (lower) ‘social rank of a class’ results in its greater (smaller) ‘economic function’ and so income. Consequently, Schumpeter treats income distribution as a ‘problem of class structure and its economic functions’, including the ‘struggle between social classes’10. In so doing, he likely follows or evokes (apart from Marx) Weber11, in particular his observation that the ‘fact of class position, under competitive market conditions, can interfere with the provision of certain strata of consumers with goods [incomes], in consequence with the ‘optimally’ profitable distribution of capital and labor in various branches of production’. Hence, the main argument of societal stratification conditioning economic distribution is implied and supported in the link between Weber’s class positions and profitable resource allocation and Schumpeter’s social ranks and economic functions.

In these terms, the distribution problem in America and to a lesser extent other Western societies, specifically the deteriorating and ever-improving conditions of the classes at the bottom and the top of the distribution respectively (Gottschalk 1997), has been produced or aggravated by such links between the prior social rank of a class and its economic functions and incomes. An indicator is that the Gini index, like virtually all other measures of income and wealth inequality, has appreciably increased in America since the 1980s, reaching a size that is almost 50 percent higher than the Western average, just as has historically been higher in this than in other industrial societies (Gottschalk and Smeeding 1997). Of course, the Gini index is just a statistical indicator of the underlying processes, i.e. the substantive connections between prior class, as well as power and status, stratification and present or future income inequalities in America and other industrial societies, so does not mean much sociologically without considering these processes. Thus, many analyses suggest that class and related stratification factors, notably power, are more satisfactory explanations than market forces ( supply and demand) for growing income inequalities in America in recent times (Fortin and Lemieux 1997). For instance, these factors include the decline of union organization and power (including density and coverage), growing economic deregulation and privatization, the declined value of the real minimum wage, low levels of employment protection, the absence of labor standards, the short duration of unemployment benefits, and the like (Fortin and Lemieux 1997; Nickel 1997).

Concluding Note

The paper has presented outlines of a sociological conception and explanation of economic distribution. It has reconsidered the role of stratification variables such as power, status and class in economic distribution, namely the influence of prior hierarchical societal differentiation on present and current incomes. In particular, the paper has outlined a conception and explanation of the effects of extra-economic or pre-market factors on the economic or market valuation of the factors of production, primarily labor.

An empirical-historical analysis of the thesis associating social stratification with economic distribution has posited and found that class, power, and status ex ante differentiation are instrumental in generating and perpetuating ex post differentials in wealth and income between individuals and groups in traditional and modern societies alike, i.e. what Weber calls economic traditionalism and modern capitalism. Prima facie, these effects of prior sociological factors on current and future wealth and income distribution invalidate or undermine orthodox economics’ principle of distributive justice, including the lack of exploitation


1. Akerlof (2002) characterizes efficiency wages as exceeding the market-clearing level (under involuntary unemployment), seeing such excesses as the thrust of efficient-wage theory. The theory seems to define such wages as instrumental in--rather than (or secondarily) as outcomes of—marginal efficiency/productivity. This definition thus differs from that in orthodox economics defining efficient (or ‘just’) wages as the equivalent or result of marginal productivity, as well as profit as one of (to use Keynes’ term) the marginal efficiency of capital.

2. According to Dobb (1973:35), in neoclassical economics income distribution is made to ‘appear as something independent of property institutions and social relations: as something supra-institutional and supra-historical so far as, at least, income-distribution between different factors is concerned.’

3. Economist Arrow (1997), generally appreciative of the role of social factors in economic behavior, explicitly attributes to income distribution, including discrimination in labor markets, ethical implications. This is implied in his statement that ‘there is no meaning to total output independent of distribution, i.e., of ethnical judgments’ (Arrow 1950:344).

4. Dobb (1973:34) comments that a theory of distribution ‘cannot be independent of initial income-distribution as essential premise [because] an initial distribution of income between individuals is implicit in the general pricing process.’ In his view, in classical political economy treats income distribution as the ‘result of social institutions (e.g. property-ownership) and social relations, whereas in [neoclassical economics] it is determined by the conditions of exchange. In the one case it is determined from outside and in the other case from inside the process of market prices’ (Dobb 1973:34).

5. According to Schumpeter, in marginalist (Austrian) analysis ‘disregarding their extra-economic relations, men matter for the purpose of this only insofar as they are workers, capitalists, landlords--they matter only [...] as representatives of the logic of their respective positions.’ In his view, such an analysis views distribution as functional, not personal: ‘it is at bottom not the worker and [...] the landlord, into whose lap the distributive process washes an income; labor and the land itself receive it’.

6. Neal and Johnson (1996) report that even in the USA as a putatively non-status society the wage/skill gap between various (black and white) groups partly expresses differences in family background.

7. Weber’s view is questionable since status-group monopolies are far from being displaced in modern capitalism. This holds true if bourgeois capitalists form, in addition to economic class, in emulation of pre-capitalist proxies, a sort of relatively closed status group with a differential ‘social estimation of honor’ grounded in distinct life styles. A case in point are America’s ‘robber-barons’ and their sequels, including Southern ‘good old boys’ creating a fusion of plutocracy, oligarchy and semi-theocracy by merging market monopoly with political and religious-cultural closure. To that extent, the differences between status and capitalist monopolies are the matter of degrees of closure, not substance. At least, Weber would have likely changed his distinction between status and capitalist monopolies if he revisited the US South.

8. Weber also notes that in traditional (tribal) societies, the basis of exchange-value scales ‘is not merely economic qualities but the customary worth of the goods, their traditionally imposed social significance’.

9. Weber notes that sometimes other, reformist ways of redistribution are not feasible, as in various historical cases (e.g., the Russian mir) when the majority required for some redistribution of wealth was ‘almost never obtainable.’

10. In Schumpeter’s view, professional economists cannot underestimate the widely held slogan--from the prism of pure economics, viz. marginal productivity theory--that ‘economic processes in general, and the distribution of the social product in particular, were determined not by purely economic value phenomena, but by the social power of classes.’

11. Weber suggests that money has class origin and character in that it has often been ‘not a means of exchange but merely an object of class possession’. In his view, historically, this ‘class character of money finds expression in two facts. It is differentiated according to sexes [and] class differentiation involved distinguishing chieftain money from that of the subjects.’ Also, Keynes observes that money, invented in the sixth century B.C., has always been ‘simply that which the State declares to be a legal discharge of [exchange] contracts’. He notes that a particular historical manifestation of the class character of money has been the tendency toward its inflation under the political influence of debtor classes.


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